Cement companies in India have always enjoyed a very high price to earnings ratio. The performance of most companies from the sector have been steady, with most of the larger and the mid sized players, always having managed to remain profitable.
J K Lakshmi Cement
J K Lakshmi Cement is not the biggest cement player in the country, but, is a very cost effective player, having most of its plans in the North.
The company's total capacity is currently 8.65 million tonnes per annum.
The company is undergoing a rapid expansion, which should augur well for it going forward. Let us understand why the shares of J K Lakshmi Cement are a good bet.
J K Lakshmi Cement uses high pet coke mix, which reduces its fuel cost, when compared to others who use coal. It generates captive power, which leaves it independent of power disruptions. In fact, the company sell surplus power that it has.
The company also has a concentrated market, which means it has minimal logistics expenditure.
Demand to surge
If we take a slightly longer term perspective in mind, make no mistake, we will see demand for cement surging.
In fact, the government has planned major investment in "Smart Cities", infrastructure development, "Housing for all by 2022", as also for implementation of the nation's Swachh Bharat, cleanliness movement.
This will all see demand for cement surging in the coming months.
Solid expansion programme
The company is implementing a solid expansion programme.
A plant in Surat got completed earlier this year, while work at Orissa grinding unit is also progressing gradually.
Work on clinkerization facility at the Company's subsidiary, Udaipur Cement Works is expected to be completed by Q4FY17. In the next few years, the company's total capacity will move-up significantly to 20 million tonnes per annum.
Higher capacity means greater revenue and profitability visibility.
J K Lakshmi Cement reported a strong growth in net profit at Rs 28.72 crores for the quarter ending June 30, 2016. We believe that with the company's various expansions it can report an EPS of around Rs 20 by 2018-19.
Based on an EPS of Rs 20, and a p/e of 30 times, one can arrive at a price of Rs 600.
The stock is currently trading at Rs 496. A good bet at the current levels.
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