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This Cement Stock Has An Upside Potential Of 15%


The JK Cement stock has an upside potential of 15 per cent from current levels, according to a report by brokerage firm Motilal Oswal Institutional Equities. The firm expect a 17% EPS CAGR over FY20-22E.

"J K Cement (JKCE)'s 1QFY21 result highlights market share gains for the company, led by 50% capacity expansion in North India. Volumes declined 19% YoY v/s industry decline of 30% YoY.

This Cement Stock Has An Upside Potential Of 15%


While we raise our FY21E EPS by 10% to factor lower fixed costs, our FY22 estimates are largely unchanged. We reiterate Buy on a 17% EPS CAGR over FY20-22E, driven by capacity-led volume growth," Motilal Oswal institutional Equities has stated.

The brokerage firm also highlights the below:

1QFY21 revenue/EBITDA/PAT at INR9.7b/INR2.2b/INR0.8b was down 27%/ 29%/ 49% YoY and was +2%/ +29%/ +57% against our estimate.

Volumes declined for grey cement (incl. clinker) by 19% YoY to 1.59mt and for white cement by 48% YoY to 0.18mt. Total volumes fell 24% YoY to 1.77mt (est.: 1.73mt).

Blended realization fell 5% YoY to INR5,464/t (-1% QoQ) (est.: INR5,481/t) on a higher proportion of grey cement (90% v/s 85%) in the sales mix.

Total cost per ton declined 4% YoY (flat QoQ) to INR4,245/t and was 6% beat on our estimate due to a 27% YoY fall in other expenses from lower fixed overheads. However, decline was partly offset by negative operating leverage and the consumption of higher cost petcoke inventory.

EBITDA per ton declined 7% YoY to INR1,219/t and was 26% above our estimate of INR966/t.

Cement prices have softened by INR10-15/bag in 2QFY21 due to seasonal demand weakness. Non-trade prices have declined by INR30-40/bag.

While the industry saw volume decline of 10% over July-Aug'20, JKCE's volumes grew by 20% YoY, driven by capacity expansion.

Valuation and view:

"We expect JKCE to deliver an above-industry 13% CAGR in volumes for FY20-22E on account of its expansion in north India. Expansion has improved its regional mix in favor of north/central India as well as helped it move down the cost curve by increasing the share of cost-efficient capacities.


Our target price of Rs 1,710 is based on FY22 EV/EBITDA of 10x for the White Cement business and 9x for the Grey Cement business. Maintain Buy," the brokerage firm has stated.

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