Research firm Prabhudas Lilladher has recommended out performer rating on Shree Cement. At CMP, the stock quotes at an EV/E of 4.8x and a PER of 8.3x of FY08 estimates.

Prabhudas Lilladher report on Shree Cement:

We recently met Ashok Bhandari, CFO, Shree Cement. Key takeaways are: Cement sector fundamentals are robust and demand is likely to grow by about 10% in the next couple of years. Industry operating rates currently touching 100% and large capacity expansion expected to be delayed, the outlook for cement prices is extremely positive. With its 1.5-m ton expansion in March ’07, Shree Cement would be the key beneficiary of the robust demand. It is expected to commission another 1.5m tons in September ’07 along with a 2-m-ton grinding unit. These expansions together with captive power (based on petcoke as fuel) would help it maintain its high efficiency levels and still gain market share in the future. At an EV/E of 4.8x, and an EV/ton of USD110, valuations appear attractive. We re-iterate our OUTPERFORMER rating on the stock.

Shree Cement update

Shree Cement is expected to maintain its position as the most efficient cement company in the sector, with EBITDA/ton of over Rs 1,300 during the quarter. It is the only company in India to operate on 100% petcoke. This, along with its locational advantage (lower lead distances to markets than its peers) provides it with a distinct cost advantage over its peers. The company’s aggressive expansion plans would help it post strong volume growth over the next couple of years and would also aid it in gaining market share in the northern region.

Valuations

At the reigning price, the stock quotes at an EV/E of 4.8x and a PER of 8.3x our FY08 estimates. On an EV/ton basis, it trades at USD110. We believe these valuations to be very attractive and, given the strong sector fundamentals coupled with Shree’s efficient operations and growth outlook, we expect the stock to be re-rated. We re-iterate our OUTPERFORM rating on it.