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MOSL: Morning India (2/April/18)-1. Shree Cement; 2. Automobiles; 3. Delta Corp; 4. India Strategy (Nifty reconstitution: Financials’ weight to inch up further)

MOrning India (2/April/18): 1. Shree Cement; 2. Automobiles; 3. Delta Corp; 4. India Strategy (Nifty reconstitution: Financials’ weight to inch up further)

 

Today’s top research idea

Shree Cement: Capacity-led earnings growth on the cards; Valuations have moderated based on FY20E capacity

• SRCM is increasing its domestic capacity by ~32% over FY17-19 at an estimated capital cost of USD60/t. It has also acquired assets in the UAE at USD76/t (at a significant discount).
• SRCM’s relatively low cost of production compared to peers has resulted in healthy margins and return ratios, helping it command premium valuations.
• However, valuations have moderated to USD174/t on FY20E capacity on account of capacity addition.
• Valuations have also moderated on account of ~18% correction in the stock price from its peak due to 1) market correction, 2) downward revision in its earnings estimate and 3) multiple de-rating due to capacity acquisition in the UAE.
• SRCM is likely to deliver EBITDA CAGR of 29% over FY18-20, led by healthy volume growth (driven by rapid capacity addition) and pricing improvement (driven by higher realizations in the underlying markets in the north). We, thus, value the stock at 15.5x FY20E EV/EBITDA to arrive at a target price of INR18,867. Maintain Buy.

Piping hot news

Daiichi Sankyo moves SEBI to block Fortis-Manipal deal

• Japanese pharma major Daiichi Sankyo wants markets regulator SEBI to block the ₹15,000-crore merger deal between Fortis Healthcare and Manipal Group, saying it would potentially violate orders issued by courts in India. Daiichi Sankyo is in the process of attaching the assets of Malvinder Singh and Shivinder Singh, the promoters of the Fortis Group, to recover the ₹3,500 crore it won on an international arbitration award against the Singh brothers.