Visit http://indiaer.blogspot.com/ for complete details What’s the theme?
Shree Cement is well positioned to overcome the current oversupply situation in the cement industry,
given its balanced portfolio of cement and power. During FY11, it plans to commission 1.0mn MT of
grinding capacity at Jaipur and 1mn MT of clinker at Ras. Over the next 12 months, it also intends to
commission 300MW of power, which will be available for sale in the merchant market. The company has
aggressive plans in the power business with addition of 600MW.
What will move the stock?
1) Given a normal monsoon season across the country, we expect strong cement demand. 2) For Shree
Cement, we expect a 11.1% volume CAGR over FY10-12. 3) With improvement in the demand scenario,
we expect realizations to improve from recent lows. 4) The power business would contribute ~20% to
revenue by FY12E and provide an incremental source of earnings.
Where are we stacked versus consensus?
Our FY11 and FY12 earnings estimates are Rs191.9 and Rs206.3 respectively. Our FY11 EPS estimate
of Rs191.9 is 18.5% higher than consensus estimate of Rs161.9. We remain positive on the stock due to
management's excellent track record in project execution and strong earnings visibility.
What will challenge our target price?
1) Slowdown in construction activity in the NCR region after the Commonwealth Games; and 2) Delay in
commissioning of power projects.
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