Shree Cement Ltd’s FY22 Annual Report had three important findings for investors. A positive demand outlook, focus on alternative fuels, and green energy to tackle input cost inflation and a reiteration of 80 million tonnes (mt) of installed capacity guidance in FY30
To achieve this, Shree Cement will explore new geographies through organic and inorganic routes along with adding capacity in favorable markets. Investors should note that after the completion of ongoing projects, the company’s domestic capacity will reach 56 million tonnes by December 2024, up from 46.4 million tonnes currently. This augurs well for the company’s long-term volume growth, especially in view of the increasing competition in the sector. Analysts noted that the company’s cement sales volume grew 4.7% year-on-year in FY22 and was lower than the industry’s forecast of 8% growth in volume, thus indicating a decrease in market share for the company. .
That said, capacity expansion is expected to remain in place. Capital expenditure (capex) high. “Based on the new set of announcements (including Integrated Cement Plant in Rajasthan, GU, Green Power Capex in West Bengal) and the 3MTPA Andhra project, which the company announced recently, FY23-FY25 plus annual capex of Rs.20 Billion plus, in our view,” said analysts at Jefferies India Pvt Ltd. MTPA is low for million tonnes per annum.
Meanwhile, the share of green energy in its total power requirements was 48.2% in FY12. Analysts at Motilal Oswal Financial Services Ltd say Shree Cement stock is trading at a premium valuation due to higher share of green power and cost leadership achieved through greater reliance on split grinding units. However, the domestic brokerage house believes that the cost advantage over the industry’s competitors will gradually ease as other companies are increasing their green energy capacity over the next few years and the industry is also increasing the mix of split grinding units.
So far in this calendar year, Shree Cement’s stock is down 28% mainly due to input cost pressures and weak price trends in key eastern India market. Going forward, analysts do not see a rapid improvement in stock performance until cost inflation has moderated significantly and prior realizations improve.
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