Shree Digvijay Cement Company (Buy @ 16 with a price target of 30)

The story so far ………..

Shree Digvijay Cement Company – SDCC operates a 1.1 million MT cement capacity at Jamnagar – Gujarat and sells cement under the brand name – “Kamal”. Its plant operates at 86% capacity utilization and has a 7% market share in Gujarat. SDCC posted revenues of Rs330crs in CY’11 with an EPS of 0.7 and has accumulated losses of Rs46crs.

In 2008 SDCC was acquired by Portugal based CIMPOR CIMENTOS who now hold 74% in the company. This MNC operates in Portugal, Brazil, Spain, Morocco, Egypt, Turkey, Tunisia and China among others and entered India in 2008 through this acquisition.

The story ahead ………..

Western India accounts for 20% of All India cement consumption and Gujarat forms ~ 40% of consumption in Western India. We expect ~ 60MT of new capacity to come through FY13-15 of which majority would be in South India. All India capacity utilization for the sector is expected to rise from 70% to 75% over the next three years. The industry is witnessing an uptick in EBIDTA per ton during the first half of the current fiscal and realizations have increased by 15%. SDCC realizations have also increased in line with this trend and we expect the company to wipe out its entire accumulated losses of Rs46crs during CY’12 itself and post an EPS of Rs3.4

Gujarat accounts for 8% of All India cement demand and with BJP sweeping the state elections yet again, we forecast the impetus to infrastructure, urban development and housing to continue the momentum thereby boosting cement demand and prospects for SDCC. On a Pan India basis too we believe that cement demand should be good as we anticipate a pick-up in infrastructure spending in the run-up towards the 2014 elections.

SDCC spent Rs45crs in CY’11 on SAP modules and in setting up a waste heat recovery power project which has since then been commissioned this fiscal and at a market capitalization of just Rs225crs this debt-free MNC cement company looks a compelling BUY at current levels of 16 for a one-year price target of 30.

Thanks and Regards

LKP Advisory

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