Recommendation from a Construction - Residential & Commercial Complexesew

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

SHREE DIGVIJAY CEMENT LTD: CAPITALISING ON INFRASTRUCTURE GROWTH

HERE IS WHY
✓  Impressive growth in India’s cement requirement
✓  Good track record of the company
✓  Virtually debt-free status

I ndia, the second-largest cement producer globally, has significant potential for development in the infrastructure and construction sector. The cement sector is expected to benefit from rising rural housing demand and the strong expansion of the industrial sector. The availability of raw materials for making cement, such as limestone and coal, is a significant factor assisting the sector’s growth. India’s cement production reached 374.55 million tonnes in FY23, a growth rate of 6.83 per cent YoY. India’s cement industry reached 3.64 billion tonnes and is expected to touch 4.83 billion tonnes by 2028, exhibiting a CAGR of 4.94 per cent during 2023-28.

Cement consumption is expected to reach 450.78 million tonnes by the end of FY27. Owing to this, our low price scrip recommendation for this issue is Shree Digvijay Cement Ltd., a flagship company of the Cimpor Group. It offers a range of products, including special cements like oil well cement, sulphateresisting Portland cement, and railway sleeper manufacturing cement. With a fully computer-controlled plant and a production capacity of 1.30 million tonnes per annum, the company has a significant market share in Gujarat and internationally in SAARC countries, the Middle East and East Africa.

The company’s brand, ‘Kamal Cement’, is well-known in the cement industry. Anil Singhvi is the CEO of Shree Digvijay Cement who has worked 23 years with Ambuja Cement and has over 40 years of experience in the cement industry. He is regarded as an industry veteran. The company is set for significant growth due to its costeffective capacity expansion plan, which aims to increase its capacity from 1.2 million tonnes to 3 million tonnes for a low investment of ₹250 crore. This strategy focuses on maximising return ratios, as a 1 million tonne expansion typically costs ₹700-800 crore.

The company’s raw material like coking coal cost, which has fallen 50 per cent from its peak, will lead to improved margins and increased profitability. The expanded capacity could potentially generate an EBITDA of ₹240-260 crore by FY25E, indicating a bright future for the company. Combined, these factors indicate Shree Digvijay Cement is well-positioned for robust growth driven by cost-effective expansion, favourable raw material prices, and the potential for substantial profit improvement.

In Q4FY24, Shree Digvijay Cement’s consolidated revenue rose by 14.94 per cent to ₹224.37 crore compared to ₹195.20 crore from the previous year’s same quarter. Its PBIDT excluding other income grew by 25.80 per cent to ₹47.98 crore compared to ₹38.14 crore from the previous year’s same quarter, while sequentially it decreased by 2.19 per cent. The net profit stood at ₹31.74 crore compared to ₹24.43 crore, a YoY growth of 29.94 per cent, while sequentially it increased by 1.06 per cent.

At TTM, Shree Digvijay Cement is trading at a PE of 19.2 times, which is slightly higher than its three-year median PE of 19.8 times. The company has maintained a healthy average ROE and ROCE of 20.4 per cent and 28.5 per cent, respectively, in the past three years. In the same period, it recorded compounded sales and profit growth of 16 per cent and 17 per cent, respectively. The company is also virtually debt-free with an interest coverage ratio of 56.8 times. Considering the aforementioned factors, we recommend BUY.