Shubham Shetty
SAP ID – 80012100806
Division B
INTRODUCTION
Shree Cement is an Indian cement manufacturer, founded in Beawar, Rajasthan, in 1979. Now headquartered in Kolkata, it is one of the biggest cement makers in Northern India. It also produces and sells power under the name Shree Power and Shree Mega Power.
Turnover of the company for 2013–14 was ₹58.58 billion and net profit was ₹7.872 billion, Since 2006, it has more than quadrupled its production capacity both by expanding into new areas and increasing the capacities of the existing plants. Shree Cement has been ranked 4th in 2017 Responsible Business Rankings developed by IIM Udaipur. Plants are located in Beawar, Ras, Khushkhera, Jobner (Jaipur) and Suratgarh in Rajasthan, Laksar in Uttarakhand, Panipat in Haryana, Bulandshahar in UP, Raipur in Chhattisgarh and Aurangabad in Bihar. Shree cements was clearly the second largest cement company in India in 2018.
OBJECTIVE
To calculate beta of the company and find its significance.
VIEWS by ICIC DIRECT
Q3FY22 Results: The performance was ahead of our estimates.
• Revenue was up 7.3% YoY on sustained higher realizations. Volumes were down 8.6% YoY on unseasonal rains and transporters strike in east
• EBITDA/t of | 1260/t was down 17.1% YoY due to a sharp rise in fuel costs. However, it was marginally above our estimates
• PAT down 21.4% YoY to | 492.0 crore (vs. I-direct estimate: | 457.5 crore)
What should investors do?
Cost leadership, strong presence in north & east along with robust balance sheet have provided an edge over its competitors.
• With expected revenue CAGR of 16%, RoIC of 20%, we stay positive on Shree but we downgrade rating from BUY to HOLD due to rich valuations Target Price & Valuation: We value Shree at | 28,700 i.e. 21.5x FY23E EV/EBITDA
Key triggers for future price performance:
• With commissioning of 3 MT grinding unit in Maharashtra, domestic capacity has reached 46.4 MT. The clinker unit in Chhattisgarh (capacity of 12000t/day) to get commissioned by H1FY23 (capex | 1000 crore)
• Other new capex includes
1) setting up of new integrated unit with 3.5 MT GU and 3.8 MT clinker unit in Rajasthan by Q4FY24E
2) 3 MT grinding unit in West Bengal by Q4FY23E
3) 106 MW solar power
• The entire total capex of | 4750 crore till FY24E will be funded via internal accruals. Total domestic capacity to reach 53.4 MT post these expansions
• Expected to continue to maintain its cost leadership, market share due to structural advantage it has in terms of accessing raw materials and markets
• The likely price hikes to the tune of 4-5% to help improve margins
DATA COLLECTION
Data of index and equity were collected from https://www1.nseindia.com/ and https://www.nseindia.com/ respectively. Daily returns from 1st March-2021 to 28 Feb-2022 were downloaded in excel format from these websites and it was sorted into weekly format. Then weekly returns were calculated for both index and equity and then regression analysis was done.
DATA ANALYSIS
Predicted Y = Y’ = 0.223476+0.207423X
N=47, R Square= 0.1943, F=10.59265
Tstat (beta) = 3.254635
Tstat (0.05,45)= 2.0141
The above regression equation tells us the relationship between X and Y. Where X is NIFTY’s weekly returns and Y is Shree Cement Ltd’s weekly returns.
The positive sign of Beta tells us the that there is a positive relationship between NIFTY and Shree Cement Ltd’s weekly returns.
From the equation, it can be seen that if X rises by 1 unit, Y will rise by 0.207423 units.
T calculated is more that T tabulated which means, β is statistically significant at 5% confidence level.
R^2 is 0.1943 which means 19% of Y (Shree Cement Ltd) is explained by X. And the balance is explained by error.
F is 10.59265 which is more than table value which means model is statistically significant at 5% level.
CONCLUSION
β is statistically significant in case of NIFTY and Shree Cement ltd. Also, it can be concluded that Shree Cement ltd is a low beta share, since it is less than 1.