The Hindu Business Line reiterates our buy on the stock of Shree Cement at the current price of Rs 774 as there is potential for upside, given the stock’s discounted valuation and emerging strengths. The stock is up 34 per cent from our earlier ‘Buy’ recommendation in September at Rs 576. The stock trades at a price-to-earnings ratio of just five times, at a sizeable discount to leading players such as ACC and Ultra Tech Cement (7-10 times). A rising contribution from the company’s power division, improved cost control measures and the falling pet coke prices lend support to earnings prospects. Capacity additions (2.5 mtpa by end FY10) may also give a volume advantage, if strong trends in cement demand sustain. The risks to prospects of the entire cement sector arise mainly from the addition of new capacities (37 mtpa estimated for FY10) and the likely fall in utilisation rates for players over the next year or two. If this entire capacity materialises, the market would see a surplus o...
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