Shree Cement

CLSA revises the target price on Shree Cement from Rs 2,000 to Rs 2,400 and maintains the `Buy’ call. Shree Cement’s management suggests that the firm’s power-capacity target is on track - it would commission 300 MW by March ‘11. Its cement capacity in December ‘09 exceeded the estimate and grew 22% y-o-y. CLSA expects a strong 53% y-o-y EBITDA growth in Q3FY10 and raises the EBITDA forecast by 3-6% over FY10-12, mainly to factor in an increase in cement capacity and higher earnings from the power segment. The group has entered into a fuel-supply agreement for 0.2 million tonnes of pet coke with an overseas firm. The company is to report some 50% y-o-y growth in EBITDA in Q3FY10, led by strong expansion of the overall volume by 22%, higher realisation and 70% y-o-y growth in power EBITDA. Meanwhile, despite a 120% y-o-y increase in depreciation charges on the back of the capitalisation of grinding units and power plants, a reduction of tax rates by 12 ppts y-o-y, to some 14%, would help reported earnings grow by 55% y-o-y. CLSA changes the depreciation projections and lowers the tax-rate assumptions, to upgrade EPS estimates by 4-25%.