1. STOCK PITCH – SHREE CEMENT
9th Feb,2017

2. Shree Cement is a Buy | Target: 21424, Current: 15870
Highest 10 year Sharpe Ratio among peers
Strong Past Track Record
Favourable Macroeconomic Environment in longer term
Under-priced Stock
Highest operating margin leading to higher PE multiple
Strong Business Fundamentals
Trend Analysis: Stock trading below 150 day moving average
BUY SHREE CEMENT

3. Indian macroeconomic environment favorable for cement industry
Infra Spending as % of GDP
Power, Roads, Railways, Irrigation, Urban Infra
Cyclical Industry
Infra spending to aid growth
Housing major demand driver
Demonetization effect not as severe as anticipated
Allocation increased by 39% to INR 290 billion
Rural Development ministry budget up by 10%
Strong push in Budget 2017
Demand triggering higher capacity expansion and operating rates

4. Shree Cement best positioned among peers to capitalize on favorable trends in the industry
Shree Cement has highest operating margin driven by lowest material costs
ACC
Ambuja
S&P BSE
Ultra Tech
Shree Cement
Shree Cement delivered higher rewards per risk over past 10 years
P/E
Price
Shree Cement
43.9
15850
Industry
51.5
18590

5. Operating Margin Rates
Shree Cement undervalued as per FCFE valuation
Cost of Capital
Current ratio of 4.95; expected to go up-to which is Ultratech’s ratio. No investment in terminal stage.
High gestation period
High terminal ROIC of 16% as per balanced model
The stock is a Long term Buy as per FCFE and P/E estimates. Estimates go below current levels on assumption of worst case short term revenue growth of 6%.
Revenue Growth Rates
Operating Margin Rates
Sales to Capital
Assumed 3 stages of revenue growth
Current growth of 16% for 6 years, intermittent rate of 5% for last 3 years and terminal economic growth of 2%
Risks of delayed implementation, inter-linkage with GDP growth, seasonal and cyclical
Current Cost of Capital of 15.28%
At mature stage, cost of capital is that of market investment (8.82%)
Change in company beta value with maturity and change in market risk not taken into consideration
Shree cement has best in class op. margin rate of 25.86%
At terminal stage, the margin is estimated to be 20.12% (Ultratech)
Sustainability of cost advantages
High utilization even after expansion
Est
13895
15870
21424
Defensive
Actual
Balanced
15870
21424
Current Stock Price
Predicted Stock Price
74.1%
Percentage underpriced

6. Questions?
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7. Back Up: Regional Demand

9. Indian macroeconomic environment favorable for cement industry
Infra Spending as % of GDP
Power, Roads, Railways, Irrigation, Urban Infra
Cyclical Industry
Infra spending to aid growth
Housing major demand driver
Demonetization effect not as severe as anticipated
Allocation increased by 39% to INR 290 billion
Rural Development ministry budget up by 10%
Strong push in Budget 2017 
Government Mind