Motilal Oswal Bets On This Multibagger Midcap Cement Stock, Suggests Buy For See High Returns

Motilal Oswal assigned buy on JK Cement Limited (JKCE) with a target price of Rs 3,550/share to the stock. Considering the current market price of the stock and the brokerage's given target price, it could surge up to 22%. JK Cement is a midcap Cement company having a market cap of Rs 22,628.01 crore.

Stock Outlook & Returns of Investments

The stock on Friday last traded at Rs 2,928.50/share, down 3.65%. The 52-week high of the stock was recorded on 10 January 2022 at Rs 3,659.25 and the 52 week low was recorded on 23 June 2022 at Rs 2,003.70, respectively.
 
 The stock fell 4.33% in the past 1 week, however, in the past 1 month, it surged 9.89%. Over the past 1 year, it gave 16.2% negative return. Whereas in the past 3 years, it gave 151.92% multibagger return and in the past 5 years, it gave 171.38% multibagger return, respectively.

Fast-tracks entry into Paints via an acquisition

• JK Paints and Coatings (a wholly-owned subsidiary of JKCE) has entered into a definitive agreement to acquire 60% controlling stake in Acro Paints for INR1.53b. It will acquire the balance stake over the next 12 months. 
• Acro Paints has two manufacturing facilities at Bhiwadi in Rajasthan. It has a wide product portfolio (over 3,000 SKUs at various price points across all categories: economy, premium, and luxury) and a presence in decorative and textured paints, construction chemicals, and waterproofing products. 
• As per JKCE's management, Acro Paints will incur a capex of INR200m, which will boost its capacity to 60,000kl/6,700kl for decorative and textured paints/construction chemicals. The capacity expansion is estimated to be completed by 2QFY24. 
• The management had earlier indicated that it will enter into the Decorative Paints business at an investment of INR6b. The acquisition will fast-track its entry into the Paints business and expand its product offerings via Acro Paints' strong distribution network. The acquisition will also help its foray into construction chemicals and waterproofing products, which has a market size of over INR52b and an annual growth rate of 10%. 
• At the acquisition cost, the enterprise value works out to ~INR40/liter, which is similar to the commissioning cost of a greenfield plant. 

Buy for a target price of Rs 3,550/share

JKCE trades at 13.7x/11.6x FY24E/FY25E EV/EBITDA and at an EV/t of USD148/ USD114. It has traded at an average one-year forward EV/EBITDA of 11.5x for the last five/10 years. "We have a Buy rating on the stock with a TP of INR3,550 (13.5x/14.5x Sep'24E EV/EBITDA for Gray/White cement)," the brokerage has said.

 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. 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 consult with certified experts before making any investment decision.