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Shree Cement Emerges As Top Nifty Loser After Q1 Results

Here’s what brokerages have to say about Shree Cement’s first-quarter performance.

A pile of cement lies on builders slab. (Photographer: Chris Ratcliffe/Bloomberg) 
A pile of cement lies on builders slab. (Photographer: Chris Ratcliffe/Bloomberg) 

Analysts remained cautious on Shree Cement Ltd. due to its expensive valuations and poor operational performance than peers in the quarter ended June, a period marred by the coronavirus pandemic, making the stock the biggest loser on the Nifty index.

The company’s Ebitda per tonne fell 5.6% year-on-year to Rs 1,462 in the April-June period, according to an exchange filing. Shree Cement is the only company to have reported a year-on-year decline in Ebitda per tonne, underperforming larger peers like ACC Ltd., Ambuja Cements Ltd. and UltraTech Cement Ltd.

While Shree Cement still managed to report a rise in its net profit, aided by lower than expected depreciation, analysts maintained their ‘Sell’ ratings.

Of the 42 analysts tracking the stock, 14 have a ‘Buy’ rating. That’s closely followed by 13 ‘Sell’ recommendations. The rest suggests a ‘Hold’. The average of Bloomberg consensus 12-month target prices implies a downside of 8%. Shares of Shree Cement were trading 4% lower on Tuesday compared with a 0.71% gain in the benchmark Nifty 50 Index.

Here’s what brokerages said about Shree Cement’s first-quarter performance:

CLSA

  • Maintains ‘Sell’ with target price unchanged at Rs 20,300 apiece
  • Decline in Ebitda per tonne is in sharp contrast to cement marker with historic high profitability
  • Power costs surprised positively but were offset by high freight expenses
  • Revised FY21-23 Ebitda estimates by -1% to 3%
  • Stock trading at 70% premium to other cement makers and 80% to its replacement cost

JPMorgan

  • Maintains ‘Neutral’ but raised target price to Rs 19,250 from Rs 18,000 apiece
  • Expects Ebitda per tonne to remain range-bound over prevailing levels in FY20-22
  • Scope to cut costs meaningfully from current levels limited
  • Struggles to find upside at current demanding valuations

HSBC

  • Maintains ‘Reduce’ with target price unchanged at Rs 14,800 apiece
  • First quarter Ebitda misses estimates due to lower-than-expected realisations
  • Only major cement producer to report year-on-year decline in Ebitda per tonne
  • Profit after tax beat was on account of lower-than-expected depreciation
  • Finds expensive valuation unjustified

Prabhudas Lilladher

  • Downgrades to ‘Reduce’ from ‘Hold’ but raises target price to Rs 19,100 from Rs 19,000 apiece
  • Shree Cement lags peers with flat blended year-on-year Ebitda per tonne
  • Peaked out margins, slowing growth and stretched valuations a concern
  • Constrained capacity addition pipeline