Shree Cement is a operationally-focused cement manufacturer. Unlike other commodity manufacturers, the company follows value over volume strategy, focusing on pricing, branding, nil financial leverage and operational efficiency. While these strategies have delivered margin growth, the commodity industry does operate on volume growth. The company is likely to deliver a high single-digit capacity expansion for the next three years on the existing efficient base of operations.

Investors should monitor the sales growth from the capacity expansion and accordingly accumulate the stock on dips, which is trading at an EV/EBITDA of 15.7 times one-year forward EBITDA – a 15 per cent discount to the last five-year average. The stock has undergone a time-wise correction, delivering only 9 per cent returns in the last five years compared to 90 per cent returns for Nifty 50.

With peers nearing the end of their aggressive expansion stage, the calibrated approach of Shree Cement could work in its favour only if sales growth plays out in the next three years.

Capacity expansion for revenues

Shree Cement has a current capacity of 62.8 mtpa (million tonnes per annum), which should increase 10 per cent to 68.8 mtpa by FY26-end. The company has commissioned a 3-mtpa clinker capacity in Rajasthan and will commission a 3-mtpa cement plant shortly. An integrated 3-mtpa cement plant in Karnataka is also nearing completion.

In the long term, the company intends to increase the total capacity to 80 mtpa. This is planned for FY28, but this could be delayed to FY29. The company will assess the demand-supply situation for the expansion, as per the management. Overall, it is planning to deliver 8-10 per cent capacity growth in the next three-four years.

While this is capacity expansion, the sales ramp-up can be gradual. The company has a current utilisation rate of 60-65 per cent compared with peers operating in 70-75 per cent range despite higher capacities. While the utilisation of new plants will improve only gradually, the company prioritising value over volume could also restrict utilisation rates if cement pricing or demand turn weak, going forward.

The cement demand in India, though, is expected to grow strong along with pricing. Post-rationalisation, GST rate has come down from 28 per cent to 18 per cent. This should be reflected post-monsoon (H 2FY26), especially from affordable housing and rural sectors. The infrastructure push continues and the lower interest rates are an additional tailwind for the same. The cement pricing has only recently recovered and the higher consolidation in the industry should aid cement price growth as well.

The company has a strong presence in Dubai as well, which reported sales of 1.3 mtpa in Q2FY26, which is a 33 per cent year-on-year growth. The company is assessing a 3-mtpa capacity in Dubai with AED 110-million investment, if strong demand persists.

Margin levers

The company has focused on value generation, which is profit and cash-flow generation and is evident from the 53 per cent growth in H1FY26 EBITDA per tonne albeit on a low base.

Premium product mix has increased from 15 per cent to 21 per cent in the last one year. The company aims to drive this shift in mix, which is a primary margin lever. In Q2FY26, 63 per cent of the electricity consumed by the company has been derived from renewable sources, including solar, and this has lowered the power and fuel consumption cost from ₹1,800 per tonne in FY23-24 to ₹1,500 per tonne in H1FY26. Along with this, the company is investing in railway sidings to reduce logistics costs by about ₹100 per tonne in the next two-three years.

The company is improving its brand positioning vs the industry leader to address the pricing gap. These measures have started yielding results in the form of improved margins and should fetch incremental gains on further implementation.

Financials, valuation

The capacity expansion plan is built on ₹3,000-crore capex in FY26 and FY27. More importantly, the company intends to fund the expansion based on internal accruals. The company has a net debt to EBITDA of -1.2 times in H1FY26, which implies a net cash position.

It reported revenues and PAT of ₹10,042/₹953 crore in H1FY26, which is a 10 per cent revenue growth and a 170 per cent PAT growth on a low base. The lower cost of fuel, green energy mix, premium portfolio and improved cement prices have aided the company in the first half of FY26.

The company should deliver strong earnings growth based on the expanded capacity and efficient base of operations, if the utilisation and sales growth are not hampered by weak market conditions as the company prioritises value over volume even in a commodity industry. The GST rate cut and other strong macroeconomic indicators are supportive of strong growth though.

Published on December 27, 2025