Shree Cement shares trade flat after Q2 net profit zooms 159%

Shree Cement shares traded flat on November 8 after the company reported healthy earnings for the fiscal second quarter. Its net profit shot up 159 percent on-year to Rs 491 crore amid declining raw material prices, and revenue from operations jumped 21 percent to Rs 4,585 crore.

Analysts are positive on Shree Cement as they believe that cement demand in India is expected to remain robust in the mid-term on account of rising expenditure on infrastructure and housing development.

At 9:18am, the Shree Cement shares were trading at Rs 26,450.05 on the National Stock Exchange. So far in 2023, the stock has risen around 13 percent, outperforming the benchmark Nifty.

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Along with its September quarter numbers, the Shree Cement board also approved the setting up of a brownfield cement grinding capacity of 3.40 million tonnes per annum (MPTA) capacity at its existing facilities in Chhattisgarh with an estimated capital expenditure of Rs 550 crore. This project is estimated to be completed by September 2025.

“As the country enters into a multi-year strong demand cycle, we are aggressively marching ahead on our expansion plans to achieve our target of going beyond 80 million tons capacity by 2028,” said Neeraj Akhoury, Managing Director, Shree Cement.

According to analysts at Motilal Oswal, Shree Cement‘s capacity expansion announcement is part of its aim to reach a grinding capacity of over 80 MPTA by FY28 compared to 49.9 MPTA currently.

“Shree Cement trades at premium valuations due to cost leadership, efficient capital deployment, and higher capacity CAGR. However, we continue to believe that its cost benefits over its peers are narrowing,” the brokerage said.

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Jefferies has a ‘hold’ rating on the stock with a target price of Rs 22,700. The company is successfully repositioning itself as a premium cement brand, helping it command higher prices vs peers is among the key upside risks for Shree Cement.

Significant and rapid capacity addition in favourable markets, value-accretive acquisitions, and higher merchant power demand and prices are other positive triggers.

The key downside risks include resurfacing of the fight for market share in key markets, spike in energy costs, and delay in adding capacities, the international brokerage noted.

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