Target: ₹27,000
CMP: ₹31,559.45
We downgrade Shree Cement Ltd (SRCM) from Hold to Sell. SRCM trades at FY27E EV/EBITDA & EV/CE multiples of 16.2x/4.5x, making it amongst the richest valued cement stocks under our coverage.
At 6.7/7.6 per cent (FY26E), SRCM’s RoE/RoCE don’t cover its cost of equity and cost of capital at 12.5/12.4 per cent, even under optimistic operational assumptions. SRCM’s capital structure is sub-optimal with cash and equivalents on books (which includes cash and bank balance, current investments and cash-like components in non-current investments at FY25 end) at ₹11,800 crore (forming about 10.6 per cent of current market cap). We believe this high level of cash is an overhang.
That apart, there is limited scope for SRCM’s best-in-class management to improve its RoCE by cost take-out initiatives, which its other less efficient peers are implementing. SRCM’s cost structure is already amongst the most efficient in the industry, with high levels of renewable/green power penetration (about 60 per cent) and limited scope to save on logistics, raw materials, and other aspects. In our view, there are hardly any low-hanging fruits that the management can capitalise on, to improve its return profile.
Published on May 16, 2025
