Buy Shree Cement Ltd For Target Rs. 35,300 By Emkay Global Financial Services Ltd
In the DNA
We recently met the senior management of Shree Cement (SRCM). KTAs: 1) Crystal clear intention of focusing on profit maximization and healthy cashflows vs market-/capacity-share growth. 2) Optimum cash allocation, which aligns with stakeholder interest. 3) Steadfast toward achieving its capacity guidance of 80mtpa (~63mtpa now) in the medium term. 4) Refrains from acquiring expensive cement assets or venturing into non-core business segments. 5) Continues with cost optimization and efficiency improvement measures. 6) Requisite limestone reserves to service existing capacities and new expansions
We make note of i) SRCM’s sectoral pole position (EBITDA/t) in the past three quarters, despite range-bound prices in north/central India, ii) SRCM’s recent success in narrowing the pricing gap with category-A players in its operating regions, with reasonable headroom to further narrow the gap, iii) SRCM’s superior and best-in-class RoIC, and iv) broadly-stable cement prices (in Q2FY26TD vs Q1FY26 average levels) at pan-India level, despite the prolonged monsoon, albeit v) cement being relatively inelastic, though price reduction (~Rs25/bag) due to the GST rate-cut shall ensure buoyant cement demand in the mid-to-long term.
We thereby increase our EV/EBITDA multiple by a notch to 19x (18x earlier) while retaining our earnings estimate. We continue to value SRCM on Jun-27E EBITDA at revised up target price of Rs35,300 (earlier Rs33,445), and upgrade the stock to BUY (from Add); SRCM is our top-pick in the sector, along with UltraTech and JK Cement.
Narrowing the gap with price leader in core markets
Based on checks and our expert webinar (refer to our note: “Fireside chat: Demandsupply, Jaisalmer, and South India”), we note that SRCM has successfully managed to narrow the pricing gap with the respective market leader in an operating market by Rs5- 7/bag in the past ~3 quarters. Given that EBITDA is most sensitive to price change, we see the price gap narrowing as an important lever for EBITDA growth amid average volume growth. We estimate that EBITDA/t would improve to ~Rs1,400/Rs1,520/Rs1,590 in FY26E/27E/28E, respectively, from ~Rs1,065 in FY25.
Premium product contribution is still below that of peers
SRCM saw improvement in premium sales, which were 17.7% of trade volume in Q1FY26 vs 15.6% in Q4FY25. We believe that despite the rise in premium sales, SRCM’s premium share is still below that of peers UltraTech (~34%) and Ambuja Cements (33%) and, hence, offers headroom for further improvement. In Q4FY25, SRCM launched product ‘Bangur Marble Cement’ (under master brand Bangur)—an extra white Portland slag cement—in the Bihar, West Bengal, and Jharkhand markets; this will support expansion in premium share sales. Ahead, improvement in realization will be the key monitorable.
Best-in-class return ratios
SRCM’s focus on profit maximization will reflect in its return ratios. We expect RoIC to jump to 27%/33%/38% in FY26E/27E/28E, respectively, from a mere 12% in FY25. SRCM is set to report a healthy lead in RoIC as against peers.
Balance sheet – In the pink
SRCM reported net cash of ~Rs65bn as on Mar-25 end. Further, we expect SRCM to spend Rs90bn as capex cash outflow during FY26E-28E as against generation of operating cash outflows of ~Rs160bn over the same period. Consequently, we see net cash and cash equivalent levels at ~Rs127bn vs ~Rs65bn at FY25-end.
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