Shree Digvijay Cement Co. Ltd

Recommended Price: ₹91

Target Price: ₹114

Upside: 25%

Shree Digvijay Cement Company Ltd. has been a unique trendsetter providing superior quality Ordinary and Special Portland Cement. Oil Well Cement is a crucial speciality product of the company. The company is India’s largest producer of Oil Well Cement, with close to 30 years of expertise in manufacturing. The company’s top-quality Portland Pozzolana cement has top-quality Pozzolana particles for higher reactivity. The High Reactive Silica (HRS) in the cement helps to give the most optimised workability with low Heat of Hydration & Low Water /Cement Ratio to guarantee denser concrete for durability, strength and the most extended service life. OPC’s low magnesia and negligible chloride content make the concrete crack and corrosion-resistant, ensuring ever-lasting protection for the structures.

Key Investment Thesis

• Mr Anil Singhvi is the CEO of Shree Digvijay Cement. He has worked 23 years in Ambuja Cement, has over 40 years of experience in the cement industry, and is regarded as an industry veteran.
• Currently, the company has a capacity of 1.2 million tons which will increase to 3 million tons by incurring Rs. 250 crores in capex.
• For a 1-million-ton cement expansion, Rs. 700-800 crores is needed, whereas, in the case of Shree Digvijay, only Rs. 250 crores is being deployed to get an additional 1.8 million tons capacity. This shows excellent capital allocation and a focus on higher return ratios by the company.
• Coking coal prices are down 50% from the highs, which is a crucial raw material for cement companies, and these benefits will start accruing in the next 2-3 quarters for the company.
• On the expanded capacity, if it could sell 2 million tons, its EBITDA/ton would be Rs. 1200-1300 per ton and EBITDA of Rs. 240-260 crores by FY25E.

Management Commentary

• Excellent demand recovery from the last four months in 2023.
• The company expected 20-25% volume growth but did 10% due to cyclone Biparjoy.
• After Biparjoy, demand was excellent due to reconstruction work.
• Very good demand in August 2023 is expected.
• The cement demand is very good, but there are no price hikes.
• Input cost has decreased by 50%, which can increase margins.
• EBITDA can increase by USD 200-300 per ton to increase profitability.
• The company is expanding its capacity to 3 million tons from 1.2 million by doing a capex of only Rs. 250 crores.
• The company is focused on creating shareholder value by maintaining ROCE above 20% and a dividend yield of 4.5% (both industry best figures).
• The low capex and high return will be their focus which will make them the highest EBITDAmaking cement company in the next two years

Valuation and Outlook

Shree Digvijay Cement Company Ltd. has stood firm for the past seven decades, carving out the long, proud legacy of building the nation by manufacturing superior cement. Today, it is one of the most experienced cement-producing companies in India. Stock is trading below 10x FY25E PAT estimate of Rs. 130 crores. For a cement company led by the most respected person in the industry, focused on creating shareholder value, generating very healthy ROCEs and a reasonable dividend yield of 4.5% and now going towards growth, the risk-reward is very favourable. Hence, we assign a target price of Rs. 114 (12x FY25E).

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