Shree Cement Cluster: Cannonball Recommendation: Hold Price target: Rs1,885 Current market price: Rs1,841
Put on hold; Book partial profits
Shree Cement is very close to adding 85MW capacity (50MW though thermal generation and 35MW through waste heat recovery) to its existing power generation capacity. The said capacity that was to come on-stream by March 2010 is now expected to be on-stream two-three months ahead of the schedule. This is likely to marginally increase the earnings estimates of the company for FY2010. However, we are maintaining our earnings estimates both for FY2010 and FY2011 and will revise the estimates after further clarification from the management on the subject.
Of the present capacity, around 85MW is used by the company to meet its captive needs with the balance ~30MW left for merchant sale. With the commissioning of the said 85MW additionally capacity, Shree Cement?s total power capacity will enhanced to 205MW by Q4FY2010. Besides this, the company has also decided to set up a 300MW power plant entirely for merchant sale. The said plant will come up in two phases of 150MW each with the first and second phase coming on-stream by March 2011 and September 2011 respectively.
Furthermore, the company?s cement volumes in November 2009 grew by an impressive 15.3% year on year (yoy) with the dispatches for the month coming at 0.7 metric million tonne (MMT). This impressive monthly volume growth was primarily due to the company?s presence in northern region, which has seen robust cement demand driven by government infrastructure projects, strong demand from rural areas and Commonwealth Games 2010. We had estimated the volumes for FY2010 at 10MMT (a growth of 19% compared to FY2009) as against the management?s guidance of 10-10.2MMT. On the back of strong volume growth (of 25.1%) posted by the company year to date, we believe the volumes for FY2010 could surpass our estimate. However, we maintain our volume estimates for FY2010 and FY2011, as the company may face shortage of clinker in H2FY2010.
We are revising our price target upwards on the back of likely increase in the earnings estimates (marginally) due to power capacity addition ahead of schedule and strong volume growth year to date. At the current market price the stock trades at price/earnings (PE) of 10.4x, an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.4x and an EV/tonne of US$91 on FY2011E. We are revising our price target to Rs1,885, which is valued at an EV/tonne of US$95. We advise investors to book partial profits and are downgrading our recommendation on the stock from Buy to Hold, as the price target offers limited upside from the current market price.
Wipro Cluster: Apple Green Recommendation: Hold Price target: 656 Current market price: Rs639
Emphasising on revenue profile and productivity
Wipro analyst meet?key takeaways
Business outlook?revenue profile and productivity improving, stability in demand and price environment
Wipro has highlighted that the company?s revenue profile has changed considerably, as the share of long-term contracts in its overall revenues is increasing. This has improved the company?s optimism about its future revenue visibility. The management also underscored that the company would continue to focus on improving its productivity, as the majority of contracts are long-term in nature with fixed pricing terms.
In terms of demand environment, the company has seen stability in the business environment and now expects a volume up-tick going forward. Additionally, the management has indicated that the technology, telecommunications (telecom) and manufacturing verticals have bottomed out. In terms of pricing, the company now expects a stable price scenario going forward.
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