Shree Cement is losing its edge over peers, but valuation remains pricey

livemint.com:

Shree Cement Ltd has been in focus lately, but not for the right reasons. The ongoing inspection from the Ministry of Corporate Affairs has been a sentiment dampener. Against this backdrop, the company’s June quarter (Q1Fy24) earnings do little to lift the mood.

Sales volume, including clinker rose 19% year-on-year to 8.92 million tonne and was largely in line with analysts’ expectations. Volumes got a push from capacity addition. Further, akin to close competitor Ulltratech Cement Ltd, the company is also going full throttle on capacity additions, amid robust demand outlook.

In an earnings call, the management said, cement demand is expected to remain strong given the government’s thrust on infrastructure development in a run-up to the general elections. Adequate rainfall is expected to boost rural demand and it expects volume growth to be in double digits in FY24. Importantly, the company has accelerated its growth plans by announcing a fresh capacity expansion of clinker/cement capacity by 7.3 million tonne per annum (mtpa)/12mtpa spread across North, Central and South regions.

The estimated capex is Rs7000 crore and these projects are likely to be completed by Q4FY25, the management said. With this, Shree Cement’s total capacity is likely to rise to 72.4mt in FY25. Remember, the company is targeting to reach over 80mt capacity by FY30.

These are long-term positives and should yield desired results over a period of time. But for now, the ongoing inspection is likely to remain near-term overhang for the stock. What’s more, the valuation gap between Shree Cement and UltraTech has narrowed in recent past, but the former still trades at premium to the latter.