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India Equity Research Reports, IPO and Stock News
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http://www.kotaksecurities.com/pdf/dmb/MorningInsight26032012.pdf
SHREE CEMENTS LTD
PRICE: RS.2959 RECOMMENDATION: REDUCE
TARGET PRICE: RS.2746 FY13E (P/CEPS): 9.1X
q We spoke to the company management regarding outlook on the cement
sector and power projects.
q Cement prices stayed firm during Q4FY12; however prices in northern region are still lower than other regions. Cost pressures continue to remain
high.
q Power plants have now commissioned but company has not tied up for
long term PPAs from these new units
q We tweak our estimates to factor in better than expected cement volumes and prices in northern region, decline in pet coke prices and also
attach valuations of power project.
q We however continue to maintain our cautious stance on the company
due to its valuations and recommend REDUCE. We would look for better
entry points to invest in the stock.
Key highlights about the company
Cement capacity and demand outlook
Cement demand has started witnessing improvement during Q4FY12 due to strong
demand from infrastructure and housing segment and has resulted in improving dispatch growth for the company. Cement dispatches stand at 9.83MT during YTD for
the company. Company expects demand growth to remain strong going forward. It
is also expanding its clinker capacity by 1.5MT at a total cost of Rs 5 bn at Ras,
Rajasthan. Company has already placed the order for equipment and this incremental capacity is likely to get commissioned by June, 2013 which will lead to improvement in cement dispatches during FY14.
Cement prices corrected marginally during Jan, 2012 due to extreme winters but
have now stabilized. Prices have already improved by Rs 10 per bag post the hike in
the railway freight and change in excise duty structure. Prices may remain firm during Q4FY12 and Q1FY13 due to strong demand but may start witnessing correction
from Q2FY13 onwards due to higher supplies as well as monsoons.
Power plants commissioned
Sales from the power division of Shree Cements has started improving from Q3FY12
after company signed short term PPAs for 265MW from Oct, 2011 to June, 2012 at
an average rate of Rs 4.3 per unit. Company had also commissioned its thermal
power plants - first phase of thermal power plant of 150MW commissioned in Oct,
2011 and second phase of 150MW commissioned in Dec, 2011. Company has not
tied up for any long term PPAs for sale of power from these new units and would
look for PPAs once scenario in power sector improves. Thus, due to subdued outlook
for power sector and state electricity boards along with issues related to coal availability, we remain concerned over medium term outlook for company's power division.
However, company has a flexibility to shift fuels in these thermal power plants. Earlier it was dependent on imported coal and now due to decline in the pet coke
prices, it has shifted the fuel requirement towards pet coke. Pet coke prices have
corrected sharply from Rs 7300 per tonne in Oct, 2011 to nearly Rs 6300 per tonne
now. This should benefit the company since it is dependent entirely on pet coke for
firing clinker and power plants.
Valuation and recommendation
n At current market price of Rs 2959, stock is trading at 10.4x and 9.1x P/CEPS
and 9.3x and 7.6x EV/EBITDA for FY12 and FY13 respectively.
n We value the company based on 6.5x EV/EBITDA on FY13 estimates and also
attach valuations of power project based on DCF since now projects are operational. We arrive at a revised price target of Rs 2746 (Rs 2038 earlier) with cement business valued at Rs.2540 and power business valued at Rs.206 per share.
n We however continue to maintain our cautious stance on the company due to its
valuations and recommend REDUCE. We would look for better entry points to
invest in the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight26032012.pdf
SHREE CEMENTS LTD
PRICE: RS.2959 RECOMMENDATION: REDUCE
TARGET PRICE: RS.2746 FY13E (P/CEPS): 9.1X
q We spoke to the company management regarding outlook on the cement
sector and power projects.
q Cement prices stayed firm during Q4FY12; however prices in northern region are still lower than other regions. Cost pressures continue to remain
high.
q Power plants have now commissioned but company has not tied up for
long term PPAs from these new units
q We tweak our estimates to factor in better than expected cement volumes and prices in northern region, decline in pet coke prices and also
attach valuations of power project.
q We however continue to maintain our cautious stance on the company
due to its valuations and recommend REDUCE. We would look for better
entry points to invest in the stock.
Key highlights about the company
Cement capacity and demand outlook
Cement demand has started witnessing improvement during Q4FY12 due to strong
demand from infrastructure and housing segment and has resulted in improving dispatch growth for the company. Cement dispatches stand at 9.83MT during YTD for
the company. Company expects demand growth to remain strong going forward. It
is also expanding its clinker capacity by 1.5MT at a total cost of Rs 5 bn at Ras,
Rajasthan. Company has already placed the order for equipment and this incremental capacity is likely to get commissioned by June, 2013 which will lead to improvement in cement dispatches during FY14.
Cement prices corrected marginally during Jan, 2012 due to extreme winters but
have now stabilized. Prices have already improved by Rs 10 per bag post the hike in
the railway freight and change in excise duty structure. Prices may remain firm during Q4FY12 and Q1FY13 due to strong demand but may start witnessing correction
from Q2FY13 onwards due to higher supplies as well as monsoons.
Power plants commissioned
Sales from the power division of Shree Cements has started improving from Q3FY12
after company signed short term PPAs for 265MW from Oct, 2011 to June, 2012 at
an average rate of Rs 4.3 per unit. Company had also commissioned its thermal
power plants - first phase of thermal power plant of 150MW commissioned in Oct,
2011 and second phase of 150MW commissioned in Dec, 2011. Company has not
tied up for any long term PPAs for sale of power from these new units and would
look for PPAs once scenario in power sector improves. Thus, due to subdued outlook
for power sector and state electricity boards along with issues related to coal availability, we remain concerned over medium term outlook for company's power division.
However, company has a flexibility to shift fuels in these thermal power plants. Earlier it was dependent on imported coal and now due to decline in the pet coke
prices, it has shifted the fuel requirement towards pet coke. Pet coke prices have
corrected sharply from Rs 7300 per tonne in Oct, 2011 to nearly Rs 6300 per tonne
now. This should benefit the company since it is dependent entirely on pet coke for
firing clinker and power plants.
Valuation and recommendation
n At current market price of Rs 2959, stock is trading at 10.4x and 9.1x P/CEPS
and 9.3x and 7.6x EV/EBITDA for FY12 and FY13 respectively.
n We value the company based on 6.5x EV/EBITDA on FY13 estimates and also
attach valuations of power project based on DCF since now projects are operational. We arrive at a revised price target of Rs 2746 (Rs 2038 earlier) with cement business valued at Rs.2540 and power business valued at Rs.206 per share.
n We however continue to maintain our cautious stance on the company due to its
valuations and recommend REDUCE. We would look for better entry points to
invest in the stock.
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