Recommendation: Buy
CMP = Rs 285
Price target: Rs 300
Key points:
- On implementation of the revised capex plan the company will emerge as one of largest cement players in the south with a capacity of 15MMT.
- Consequently, it will have higher pricing power in the wake of the downturn in the cement cycle. The higher prices in the south coupled with the savings from blending will drive the profitability of the company going ahead.
- Also, the company's strategy of putting up additional capacities through the brownfield route rather than the greenfield route will save its capital costs and thus enhance its RoCE.
- I expect the company's earnings to grow at a compounded annual growth rate of 27% over FY2007-09 on an enhanced equity capital of Rs260 crore.
- The stock has appreciated by 22% in the last one month. At the current market price of Rs 285, the stock is currently trading at 9.9x its FY2009 EPS and an enterprise value/EBITDA of 5.8x.
- I maintain price target of Rs 300 per share on this stock.
