Despite good Q4, Shree Cement’s valuation still a concern for analysts

Main cement stock Shri cement It fell about 2.84 percent to $24,045.70 on Wednesday, despite annual (FY23) and quarterly (Q4 FY23) reports that were on par with D-street estimates.

Meanwhile, the majority of analysts highlighted the company’s high valuation and higher-than-expected costs as major challenges.

ICICI Securities noted in its report that given weak pricing strength in the industry and potential industry-wide risks from the massive capacity addition by Adani Cement, “we see little benefit in arguing for a double higher valuation. We continue to rate Shree Cement is priced at 15 x FY25E EV/EBITDA, and we maintain “Cut” with our price target of Rs.

High input cost

The cost of the company’s inputs is a concern for analysts.

Emkay Global explained, “Total cost per ton increased by 11 percent YoY / 5 percent YoY (QoQ) to INR 4,409 vs. our estimate of a 2 percent decline QoQ due to higher than expected input prices.” . Assign a “hold” rating to the stock.

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The brokerage further said that strong company volume growth guidance, focus on brand, and overall improvement in deliverables/profit margins are some of the tailwinds.

What could also be in its favor is the company’s guidance on fuel cost.

According to the brokerage report, the company expects fuel cost to drop to $2.35-2.4/Kcal, the main benefits to kick off from Q2FY24.

Centrum Broking also revised its previous forecast and said, “We now factor in lower costs as well as achievement for FY24 and FY25. As a result, our EBITDA estimate for FY24 is 3 percent higher than our FY24 estimate.” 25 is 5 percent less.”

However, the brokerage maintained a “sell” rating, citing “high valuation multiples of 20x/17x FY24/FY25/EBITDA.”

Some pluses

The Elara Securities report stood out from the rest when it said: “We move into March 2025E from December 2024E; therefore, we raise TP to €28,073 from €26,099 in 18 times (from 16 times) FY25E EV/EBITDA.”

Although the brokerage noted that the company “was unable to post any significant energy and fuel cost mitigation in the fourth quarter of fiscal ’23 due to higher-cost fuel inventories, management expects the benefits of lower fuel prices to gradually reverberate through the first and second quarters.” 24 Fiscal Year.”

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It predicted that the company’s efforts to strengthen brand equity and launch new premium products would improve realization, while cost optimization initiatives such as increased use of green energy and alternative fuels would likely contain cost.

“While these measures should support margin, the gradual completion of the expansion under way will boost volume growth,” she added.