Company Name – Shree Digvijay Cement Company Limited (Shree Digvijay Cement)
Current Share Price – INR 63 (March 17, 2023)
Market Cap – INR 909 cr
1. What is interesting about the stock?
Special grade cement is used in various applications due to its unique properties. Some of the applications include:
Railway sleepers: Special grade cement is primarily used to produce railway sleepers for the Indian Ministry of Railways.
Masonry mortars: It is used for making masonry mortars due to its higher water retention, workability, and plasticity.
Rapid setting construction projects: Portland cement with a high setting rate is used in construction projects that require rapid setting.
Acid-resistant structures: Some special cements can also be used in structures that need to withstand acidic environments.
These are just a few examples of the many applications of special grade cement, which can be tailored to meet specific requirements in various construction projects. One company that makes such specialty cements is Shree Digvijay Cement.
Shree Digvijay Cement Company Limited (Shree Digvijay Cement or Company), incorporated in 1944, is currently managed and managed by a Private Equity firm named True North Fund. They brought in an excellent management team headed by the sector veteran, Anil Singhavi. The Company is engaged in the manufacturing and selling of cement offering products such as Ordinary Portland Cement 53 grade (OPC), Ordinary Portland Cement 43 grade (OPC), Sulphate Resisting Portland Cement (SRPC), Oil Well Cement Class G Grade HSR and Portland Pozzolana Cement. The Company's other products include special cements, such as Sulphate Resisting Portland Cement and Railway Sleeper Manufacturing Cement. The Company offers its products under the KAMAL brand. The Company caters to the domestic market and exports to various countries, including the United Arab Emirates, Somalia, Yemen, Bangladesh, Qatar, Sri Lanka, Iraq, Kuwait, Bahrain, Philippines, and other South Asian Association for Regional Cooperation (SAARC) and African countries. Shree Digvijay Cement has a manufacturing facility at Sikka, Jamnagar in Gujarat, housing a fully automatic modern cement plant with a manufacturing capacity of 1.20 million tons per annum. It also owns and operates a captive seaport that can harbor and handle 3,000-5,000 DWT vessels along the jetty. The port can be used for the import and export of cargo for the co. and others.
Shree Digvijay Cement primarily sells its cement in the state of Gujarat through a network of 1,000+ channel partners/ dealers.
Limestone was a major bottleneck in the growth of the Company. It has been successful in securing new limestone deposit mines and now has 20+ years of limestone for sustaining current production. It also plans to increase this availability to 50 million tons for future growth. With the additional limestone mines secured, the Company is planning expansion of its capacity.
Company has high growth potential in cement sector backed by 1) Strong brand image; 2) Monopoly in certain segments like oil well cement brand; 3) Better operational efficiency; 4) Good management team.
The Company has created a subsidiary for entering the logistics business called SDCCL Logistics.
2. Key Historical Financials
Company revenue and profit has been growing 15% and 54% on a CAGR basis respectively in last 5 years
Revenue grew 25% in FY22 and 36% in Q3FY23 on a YoY basis
EBITDA margin increased from 6% in FY19 to 19% in FY22. But the EBITDA margin have fallen in FY23 due to higher coal prices (power cost), raw material price and freight cost
Profit has been flat from FY20 to FY22
Working capital days increased in FY22 leading to poor cash flow conversion (CFO/EBITDA) ratio
ROCE and ROE were 29% and 18% in FY22 – quite healthy
3. What is my view on company valuation?
The Company is trading at a P/E of ~20x as against the median P/E ~18x on account of expected growth on the back of its capex plans and buoyancy due to infrastructure projects. The sectoral median is ~30x currently. This is due to the larger players in the country getting much higher P/E multiples than the rest of the pack. For the small-sized cement companies, the median P/E is ~18x. Long term investors can consider investing in the Company at its median P/E levels.
4. What are the risks to the investment analysis?
Risks to the analysis are:
The Company depends on other raw materials, apart from limestone, like fly ash and slag and therefore any variability in cost or availability of these directly impacts operations and profitability.
If inflationary cost trends persist and the Company cannot pass it on its customers, they pose a risk to the margins of the business.
The Company is owned by a Private Equity fund which is likely to exit at some point of time, and therefore, the likelihood of a strategic transaction or open market sales exists.
About the Author
I have over 18 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.