Shree Cement: a company to watch?

Shree Cement stock stock has the potential to deliver attractive returns over a one/two year period according to Indian analysts. Along with Grasim, Gujarat Ambuja and Madras Cements, Shree Cement is likely to emerge as a preferred play in the sector. The risks to such recommendations are the decline in cement consumption level over the past month and half, which may get accentuated if the monsoon turns out to be indifferent, a second consecutive year of modest growth in volumes and the possibility of prices coming under stress due to lower demand.

However, even if the industry performance tends towards moderate growth rate, Shree Cement may operate in excess of its capacity and maintain market share. Over the years, the company has exhibited resilience in performing well — in terms of volumes and margins — even in difficult years for the industry. As Shree Cement operates at levels higher than its capacity, it would depend on price increases to sustain its profitability levels in the two years.

In the northern market, a fine balance has emerged in the demand-supply equation. This is likely to ensure stability of prices at higher levels than in the past and also bestow producers with better pricing power. As its capacity expansion plans are completed by the end of next year, there is likely be an impetus to revenues and earnings from higher volumes; the effect may kick in a prominent manner from FY 07.