For the next 3 years, we will set aside Rs 90,000 mn Capex, says Hari Mohan Bangur, Managing Director, Shree Cement

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For the next 3 years, we will set aside Rs 90,000 mn Capex, says Hari Mohan Bangur, Managing Director, Shree Cement

Edited excerpts of an interview with Hari Mohan Bangur, Managing Director, Shree Cement; dated 24th January 2020:

• Shree Cement is the country’s second-largest cement producer. It backed out of the race to acquire Emami Cement as it wants to focus on organic growth.
• Company has raised Qualifies Institutional Placement (QIP) for the first time since listing decades ago.
• The funds raised via QIP will be used to fund capacity expansion planned over a period of six years, a part of it will also be from internal accruals. The amount raised and the internal generation are expected to suffice the planned growth.
• Shree Cement is a zero debt company and expects to maintain the status.
• The expansion strategy or the target of the company is to reach at least 55 mn tonnes per annum (mtpa) by FY23. The current installed capacity is 41.9 mtpa and it will go up to 75-80 mtpa in the next six years. More capacities will come in North, East and South India where Shree Cement already has a strong presence and clinkerisation units.
• The capex for the next 3 years is expected to be around Rs 90,000 mn. The capex projection for the next 6 years is difficult to say as it depends on many factors like USD behavior and market position.
• Organic growth will be the prime focus for Shree Cement. As organic growth takes time, planning is started early. Presently, various projects are at different stages, some of which had started 10 years back.
• If acquisition is available at reasonable cost it can be looked upon. Acquisition depends on the infrastructure in totality. USD 75-80 per tonne is the cost of putting a new unit, anything near to this rate or cheaper can be looked as an acquisition opportunity.
• There is no competition between Ultratech and Shree Cement as they are growing at their own speed and their speed doesn’t challenge Shree Cement even though both are in the same business.
• World GDP growth rate will be less than 3% and even with revised growth estimates, India’s GDP growth will be more than that.

Consensus Estimate: (Source: market screener, investing.com website)

• The closing price of Shree Cement was ₹ 23,180/- as of 24^th January 2020. It traded at 52x/ 41x/ 34x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 445/565/674 respectively.
  
• Consensus target price of ₹ 19,917/- implies a PE multiple of 30x on FY22E EPS of ₹ 674/-.