Shree Cement Ltd shares jumped over 4 percent in trade on Monday after financial services firm Nomura said that it expected nearly 19 percent upside in the stock price going ahead.

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Nomura upgraded Shree Cement to a ‘buy’ rating from ‘reduce’ earlier. It also raised the target price on the stock to Rs 28,700 per share from Rs 20,400 earlier.

Reacting to the upgrade, Shree Cement shares gained as much as 4.1 percent on Monday to hit an intra-day high of Rs 25,124.35 on BSE compared with its previous close of Rs 24,142.55.

Nomura said that it was raising its one-year forward EV/Ebitda multiple on Shree Cement to 19 times from 13 times earlier. The EV/EBITDA multiple compares the company’s enterprise value (EV) relative to its earnings before interest, taxes, depreciation and amortization (EBITDA) and is used to evaluate a company’s valuation.

Explaining the rationale behind its decision, Nomura said that cost optimisation, stronger capacity growth and management change at Shree Cement has triggered this change.

Nomura said that it considered these factors as ‘structural’ and believed that it would drive earnings growth at the company. Though, it largely maintained its earnings estimates through FY26.

The Shree Cement stock currently trades at 19.3 times, said Nomura, adding that the focus was now on maintaining the cost-leadership.

The company should maintain its cost leadership by increasing green power share to 63 percent, it added.

An increase in alternative fuel capacity would result in higher thermal rate of substitution, noted the brokerage. It also said that the company may set up railway sidings at all plants, which would lead to lower freight costs.

Notably, shares of Shree Cement have been under some pressure in the last few months, down nearly 6 percent in the first five months of this fiscal year, after the Income Tax Department conducted survey operations at the company’s selected premises towards the end of June 2023 for alleged tax evasion to the tune of Rs 23,000 crore.

Later, Shree Cement denied any tax-evasion news saying that they dismiss any related details so far.

Shares of Shree Cement were trading 3.72 percent higher at Rs 25, 041 apiece on BSE at 11:28 am.

First Published:Sept 4, 2023 2:25 PM IST