Buy JK Cement, target price Rs 1,534: Anand Rathi

Anand Rathi has given a buy rating to JK Cement with a target price of Rs 1,534. The share price moved up by 3.73 per cent from its previous close of Rs 1378.45. The stock’s last traded price is Rs 1429.90.

On higher realisations and cost savings in Q4, J K Cements’ EBITDA rose 24 per cent year on year, though revenue dipped 1 per cent year on year on lower volumes. The company said all capex would begin with a delay of 3-4 months and it would focus on cost optimisation and conserving cash. The brokerage expects the ongoing expansion to keep leverage high; however, the ramp-up of the new capacities would help restrict volumes falling year on year in FY21.

Investment Rationale

Cement prices have remained intact and even risen a little. However, labour and driver issues, and the monsoon will keep demand sluggish, according to the brokerage. The ramp-up of the new capacities would help restrict volumes falling year on year, but utilisation will be under pressure. The brokerage expects volumes to fall 5 per cent in FY21, and grow 16 per cent in FY22, with Rs 1,028/ Rs 1,167 EBITDA/ton in FY21/FY22 against Rs 1,209 in FY20. It maintains a buy rating, with a higher target price of Rs 1,534 (11 times FY22e EV/EBITDA) implying EV of $113/ton.

Risk: Rise in pet-coke and diesel prices; extension of the lockdown.


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1545.65 crore, up 5.02 per cent from last quarter sales of Rs 1471.78 crore and up .30 per cent from last year's same quarter sales of Rs 1541.03 crore. The company reported net profit after tax of Rs 160.82 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 58.06 per cent stake in the company as of March 31, 2020, while FIIs held 12.42 per cent, DIIs 23.77 per cent and public and others 5.75 per cent.