Shree Cement Emerges As Top Nifty Loser After Q1 Results
A pile of cement lies on builders slab. (Photographer: Chris Ratcliffe/Bloomberg) 

Shree Cement Emerges As Top Nifty Loser After Q1 Results

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
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