Shree Cement's Q2FY11 results were dismal as cement and power demand in north India was affected due to above average monsoons. With a flood-like situation prevailing in parts of north India, construction activity slowed. However, post monsoons, we expect cement demand to pick up. The company has already commissioned its 1mn MT clinker unit at Ras and will commission a 1mn MT grinding unit at Jaipur in FY11. Over the next 12 months, it also intends to commission 300 MW of power, which will be available for sale in the merchant market. The company has aggressive plans in the power business with addition of 600 MW. Shree Cement is thus well positioned to overcome the current oversupply situation in the cement industry, given its balanced portfolio of cement and power.

What will move the stock?
1) Given good monsoon across the country, we expect strong cement demand. 2) For Shree Cement, we expect 9% volume CAGR over FY10-12. 3) With improvement in the demand scenario, we expect realizations to improve from recent lows. 4) The power business would contribute ~16% to revenue by FY12E and provide an incremental source of earnings.

Where are we stacked versus consensus? Our FY11 and FY12 earnings estimates are Rs133 and Rs168 respectively. Our FY11 EPS estimate of Rs133 is 4.5% lower than consensus estimate of Rs139. We remain positive on the stock due to management's excellent track record in project execution and strong earnings visibility.

What will challenge our target price?
1) Slowdown in construction activity in the NCR region after the Commonwealth Games; and 2) Delay in commissioning of power projects.