Shree Cement under pressure; analysts say valuation expensive

Kotak Institutional Equities has a ‘sell” call has on the stock, while Incred Equities has said the valuation and ongoing inspections limit any further upside in the stock in the near term

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Shree Cement share price fell over a percent in the morning trade on July 27, as investors booked profits following the first quarter earnings and capacity expansion plans. Some analysts feel the stock’s valuation is expensive at current levels.

The company reported a standalone net profit of Rs 581.1 crore against Rs 316 crore in the year-ago quarter.  Revenue from operations jumped 19 percent to Rs 4,999.1 crore in the June quarter, the company told exchanges on July 26 .

Kotak Institutional Equities favours “selling” the cement stock because of rich valuations, though it has raised the target price to Rs 17,200 from Rs 16,500 on higher earnings and rollover to September 2025 financials.

Gradual de-rating and underperformance should continue given expensive valuations at 16 times EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, And Amortization Ratio) and $180 per ton EV in FY2025, the brokerage firm said.

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Incred Equities is of the view that volume and margins will show further improvement in the medium term on the back of added capacity and drop in fuel prices. The current valuation and ongoing inspections limits any further upside in the stock in the near term, it added.

The stock is trading at EV/EBITDA 18.5 times and EV per tonne of $186 FY25, which implies the scrip is still at a premium to peers. This gap should narrow as the profitability premium has fallen in the past couple of years, analysts at Incred Equities said. The brokerage firm has a “reduce” rating on the stock.

Morgan Stanley has an “equal weight” call with a target price of Rs 25,000.

At 11 am, Shree Cement was at Rs 2,3973.30 on the BSE, down 1.2 percent from the previous close.

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