Shree Cementhas limited downside say Nomura research,

Limited downside
 Business diversification to help
We expect the company’s cement business to see lower profitability,
in line with our industry view. However, we expect Shree Cement to
ramp up its power business in FY11F-13F, which should provide
some cushion to earnings. We believe the company’s business
diversification strategy will enable it to stand in good stead in the
current down-cycle in the cement industry.
 May lose low-cost edge
Shree Cement is one of the lowest cost producers of cement in India,
as it uses petcoke instead of coal for its kiln and power generation. A
sharp rise in petcoke prices in the recent past and the entry of
Reliance Industries (the largest petcoke producer in India) in the
power generation business may negate the cost advantage from
using petcoke. Under such a scenario, it is likely that Shree Cement
may lose its low-cost edge against its peers.
 Demerger not considered currently
According to management, it is not planning to demerge the
company’s cement and power businesses into two separate entities,
as it would be negative from a taxation point of view.
 Upgrading to NEUTRAL
We now value Shree Cement on a sum-of-the-parts (SOTP) basis,
using an EV/IC multiple-based approach for the cement business
(from EV/EBITDA to smooth earnings volatility in near-term earnings)
and valuing the power business at book value. Our revised price
target is Rs2044 and we upgrade the stock to NEUTRAL. On our
price target, the company’s cement business is valued at
US$75/tonne on end-FY12F capacity.