Recommendation from Cement Sector

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 Company Ltd.: Bonding Profitably

Here Is Why
✓High capacity utilisation
✓One of the pioneers in cement manufacturing
✓Sustainable growth expected

Shree Digvijay Cement Company Limited is one of the earliest companies to start manufacturing cement in India. It started its operations in 1944 in the coastal township of Digvijaygram (Sikka) in Jamnagar district of Gujarat. It has been a unique trendsetter in providing superior quality of ordinary and special Portland cement along with other products like Portland Pozzolana cement, OPC cement, SRPC cement, oil well cement, etc. Its brand ‘Kamal Cement’ has made a mark in the industry. The company primarily has set up its market in the state of Gujarat through a network of 1,000+ channel partners or dealers.

As regards its financials, the company recorded net sales of nearly ₹ 503 crore in FY21 compared to ₹ 470 crore in FY20. That is a growth of nearly 7 per cent. Despite stagnant cement prices, it recorded its highest ever EBIDTA of ₹ 111.4 crore in FY21 as against ₹ 103 crore in the previous year which showcased growth of over 8.1 per cent. However, the PAT stood at ₹ 54 crore while in FY20 it was ₹ 56.4 crore, witnessing de-growth of 4.2 per cent. The cash flows from operating activities were almost the same as the previous year level of ₹ 94 crore and in FY21 it stood at about ₹ 95 crore.

In Q3FY22, revenue grew by 5.66 per cent YoY to ₹ 151.57 crore from ₹ 143.46 crore in Q3FY21. On a sequential basis, the top-line was down by 1.49 per cent. PBIDT exclusive of other income was reported at ₹ 19.15 crore, down by 28.91 per cent YoY due to increasing cost of fuel and lower demand and the corresponding margin was reported at 12.64 per cent, contracting by 614 basis points YoY. PAT was reported at ₹ 7.28 crore, down by 48.1 per cent from ₹ 14.02 crore in the same quarter for the previous fiscal year.

The PAT margin stood at 4.8 per cent in Q3FY22, contracting from 9.77 per cent in Q3FY21. On the returns front, the ROE stood at 18.44 per cent and the ROCE was higher at 28.8 per cent. The stock is trading at a cheaper PE multiple of 12.8 against the industry average PE of 18.52. It is trading near its 52-week low price of ₹ 55 which makes it a good opportunity for buying. Also, the company is debt-free and has a good dividend yield of about 4 per cent. The business is heavily dependent on limestone availability which has been a major concern for the company.

In FY21 it successfully overcame this situation by securing new limestone deposit mines that may provide enough for the next 20 years. It also focused on reducing the cost of production by working on its waste heat recovery system which provided for 31 per cent of its power needs and significantly led to savings in cost of power. The demand for cement is expected to rise in the coming year as the government has stressed upon developing infrastructure space in the Union Budget 2022. Kamal Cement is all set to grow in the future with its limestone availability and cement plant back in action. By virtue of all these factors, we recommend our reader- investors to BUY the scrip.