ICICI Securities Is Bullish On This Cement Stock, Suggest Buy For Nearly 50% Gains, Expects Premium Share Pric

ICICI Securities in its equity research report on JK Cement Ltd, published on 15 June 2022, has suggested investors buy the stocks of the company for a 49% potential return. The company enjoys a better grey cement market mix with no exposure to East and

CMP, Target Price, Performance, Returns, 52 Week Low & High

The current Market Price (CMP) of JK Cement is Rs 2,133, the shares today fell nearly 0.18% from the previous close of Rs 2,136.95, it was opened at Rs 2,140. The 52-week is Rs 2,045 recorded this month on 7, whereas, the 52-week high was recorded on 8 November 2021 at Rs 3,838.

Looking at ROI over the last 5 years, it shows the stock has not given positive returns in short-term investment. The stock didn't perform well in the last 1 year, however, it has given positive returns on 3 and 5-year investment tenure. It gave 110.73% positive returns in 3 years, and 107.07% positive returns in 5 years.

According to the brokerage's estimated Target Price of Rs 3,170, and the CMP of Rs 2,133, it could jump nearly 50% upside in near future.

May Still Deliver Blended EBITDA Amidst Sharp Cost Escalation

JK Cement may still deliver blended EBITDA/te of ~Rs1000/te during H1FY23 amidst sharp cost escalation. JK Cement's key markets have seen ~7% QoQ price increase during Q1FY23 which should suffice for QoQ cost increases and hence, blended EBITDA/te is unlikely to fall QoQ vs Rs973/te in Q4FY22. Its volume may grow ~15% YoY on a low base during Q1FY23 - broadly in-line with industry average. Seasonally, Q2FY23 may see 15-20% QoQ increase in white cement / putty volumes which would support blended EBITDA/te in Rs900-1,000/te range.

Market share gains to continue for JK Cement

The company has posted 9% volume CAGR over FY13-22E and 20% CAGR over FY20-22E vs <5% industry volume CAGR over the same period. 4mnte Panna expansion (Central India) may get commissioned in Q3FY23 which should support 12%+ volume CAGR over the next two years. Panna has the potential for brownfield expansions; it can add another 10- 11mnte at ~US$70/te allowing JK Cement to continue to gain market share in medium term.

Better market mix to aid profitability

North would still constitute ~60% of JK Cement's capacity even after current 4mnte Panna expansion. Utilisation in the North is likely to remain >85% over FY22-25E - the highest vs all other regions. Hence, price and margins are likely to remain firm. Besides, Panna's profitability may be in-line with the company's average in the medium term owing to WHRS and incentives.

Consolidated net debt likely to peak-out at Rs35bn by FY23E and may fall below Rs20bn by FY25E. Net debt to EBITDA may fall from 2.4x in FY23E to

 

The brokerage is bullish on the stock, it said, "JK Cement may trade at a premium to its long term historical average once recent concerns around sharp fuel cost escalation recede, in our view, owing to market share gains and better than industry average profitability. Even after >40% stock price correction in the past one year, the stock has delivered 15%+ 5-year CAGR return and 30%+ 10-year CAGR return. JK Cement remains our high conviction preferred pick in the sector."

ICICI Securities Maintains Buy Rating For Target Price of Rs 3,170/share

The brokerage said, "In our view, JK Cement would emerge as the sixth largest cement group in India with 21mnte grey plus white cement/putty capacity by Q3FY23 with potential to increase the same by >50% via brownfield expansion at ~US$70/te at Panna unit (MP) in medium term. Unlike mid-cap peers, it derives nearly 25% EBITDA (Rs4bn) from white cement/putty portfolio which provides steady-state cash flow to fund its grey cement expansions."
Brokerage continued, "The company enjoys better grey cement market mix with no exposure to East and <10% exposure to South markets where prices remain volatile due to oversupply concerns. JK Cement continues to gain market share with 9% volume CAGR over FY13-22E vs <5% for industry and is expected to post 12% volume CAGR over FY22-24E. Its standalone blended EBITDA/te is unlikely to fall below Rs1,000/te even in FY23E vs Rs1,108/te in FY22E despite cost pressures. Hence, we believe, JK Cement may trade at a premium to its long-term historical average once the recent concerns around sharp fuel cost escalation recede. Maintain BUY with an unchanged target price of Rs3,170/share based on 13xFY24E EV/E, implying 50% upside. JKCE remains our high conviction preferred pick in the sector."

According to the brokerage, the key risks for the company would be Lower demand/pricing and high-cost escalation.

 

About - JK Cement

J.K. Cement Ltd is one of the largest cement manufacturers in Northern India. J.K. Cement has an installed grey cement capacity of 10.5 million tonnes per annum (MnTPA) making it one of the leading manufacturers in the country. It is also the second-largest white cement manufacturer & producer of Wall putty in India. J.K. Cement is an affiliate of the J.K. Organization which was founded by Lala Kamlapat Singhania in the year 1994.
The company also provides value-added products such as JK Primaxx, JK Cement Wallmaxx, JK Cement Gypsomaxx, JK Cement Tilemaxx, JK Cement Whitemaxx and JK Cement Shiledmaxx. The company exports its products to various countries across the Middle East, North America, South America, Oceania, Africa, and Asian regions. JKC is headquartered in Kanpur, Uttar Pradesh, India.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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.