Shree Cement gains 6% on Nomura ‘buy’ upgrade
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Nomura believes Shree Cement will maintain its cost leadership within the industry
Shares of Shree Cement rallied more than 6 percent on September 4, as analysts pinned hopes on structural factors driving earnings growth.
Foreign brokerage firm Nomura upgraded the stock to “buy” from “reduce”, with a target price of Rs 28,700, implying a 12 percent upside from the day’s close. The stock ended at Rs 25,619 on the National Stock Exchange.
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The key driver for Nomura’s upgrade is an adjustment to its one-year forward EV/EBITDA multiple, which has been raised to 19x from 13x.
Nomura’s decision to boost the multiple is underpinned by several factors, which the brokerage firm views as structural and potentially instrumental in driving future earnings growth beyond the forecast period.
These factors include a focus on cost optimisation, a more robust capacity growth outlook, and a notable change in management. While the multiple has been raised, Nomura analysts largely maintain their earnings estimates for Shree Cement through FY26F.
They said Shree Cement will maintain its cost leadership within the industry. This is expected to be achieved through various strategic initiatives, including an increase in the share of green power to 63 percent, an expansion of alternative fuel capacity to enhance the thermal rate of substitution, and the establishment of railway sidings at all plants to reduce freight costs.
The company was in the eye of the storm in June, as the income tax department came knocking on its doors amid reports alleging evasion to the tune of Rs 23,000 crore. The company denied the charge.
In the June quarter, the cement maker 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 year-on-year to Rs 4,999.1 crore.
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