Buy This Small Cap Cement Stock For Target Price Of Rs 240, Recommended By Anand Rathi

Anand Rathi, a leading brokerage firm, has recently published a report on NCL Industries Limited. The brokerage recommended "buy" the stock for the target price of Rs 240 apiece. The brokerage claims 33% potential gains if the stock is purchased at the current market price. NCL Industries is a small cap Cement company having a market cap of Rs 816.90 crore.

Stock Outlook

On NSE, the Current Market Price (CMP) of NCL Industries is Rs 181.60 apiece. The stock is trading Rs 25.6 above the 52 week low and Rs 80.4 below the 52 week high of the stock, respectively. The 52-week low level of the stock is Rs 156 apiece recorded in May 2022, and the 52-week high is Rs 270 apiece recorded in October 2021.

Returns on Investment

Over the week, the stock has fallen roughly 0.14%. In the past 1 month, it gained roughly 1.69%, while in 3 months it gained nearly 10.59%, respectively. Over the past 1 year, the stock has fallen nearly 22.84%. Over the past 3 years, the stock gave a positive return of 72%. Whereas over the 5 years, it gave a negative return of 22.21%.

Cement-modernisation exercise to aid volume growth

Weak demand in its operating region led to cement volumes falling 13.6% y/y to 0.6m tons (Deccan Cements ~ down 13%; Sagar Cements ~ up 35% backed by expansion). However, higher realisations (up 7% y/y) restricted the cement revenue decline to 2.7% y/y (to Rs4.8bn). But, overall EBITDA fell 52% y/y to Rs327m and EBITDA/ton (cement) 46.5% y/y to Rs544 on higher costs. The capacity upgrading at Mattampally GU would aid volume growth. We expect cement volume/ revenue to register 6%/9% CAGRs over FY22-24.

Low base aided Boards division performance

The Board's division results were good with the base quarter hit by lockdowns. Backed by 102% y/y volume growth and 11% y/y realisation growth, revenue expanded 123% y/y to Rs497m. Further, prices hikes helped improve margins where PBIT was Rs50m (vs a Rs13m loss a year prior). RMC sales volumes dipped 27% y/y whereas the door division volumes grew 57% y/y, yet reported a loss.

Modernisation exercise to aid volume growth; retaining a Buy

The JV agreement with Moravia Containers of the Czech Republic was terminated; consequently NCL has withdrawn its investment there. Debt at 31st Mar'22 was Rs3.1bn (net D/E ~0.4x). The pending environmental clearance would delay the Vizag GU expansion. "We expect 9%, 7% and 8% revenue, EBITDA and PAT CAGRs over FY22-24 respectively. We retain our Buy rating, at a Target Price of Rs240 (5.5x FY24e EV/EBITDA)," the brokerage said.

According to the brokerage the key risks are, "Rise in input costs, demand slowdown."

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.