ICICI Direct is bullish on JK Lakshmi Cement has recommended buy rating on the stock with a target price of Rs 315 in its research report dated November 19, 2018.
ICICI Direct's research report on JK Lakshmi Cement
JK Lakshmi Cement’s Q2FY19 results were better than our estimates. Revenues increased 9.6% YoY to Rs 851.4 crore (above I-direct estimate of Rs 789 crore) led by 12.6% volume growth to 2.13 MT (vs. I-direct estimate of 1.97 MT) and 2.6% YoY decline in realisation to Rs 4,003/t (vs. I-direct estimate of Rs 4,010/t) The EBITDA margin contracted 153 bps YoY to 10.8% (vs. I-direct estimate of 9.6%) due to higher fuel & power cost led by higher petcoke cost. EBITDA/t declined 14.8% YoY to Rs 430/t (vs. I-direct estimate of Rs 385/t) The work on project of 20 MW thermal power plant and Odisha grinding unit is progressing as per the schedule. They are likely to be commissioned by the end of FY19. This is expected to lead to a reduction in power and logistic costs, going forward.
Outlook
Increased government spending in roads & affordable housing and revival in rural economy are expected to boost cement demand in coming years. In addition, with limited capacity addition (2.0% CAGR in FY18-20E) and improved demand (CAGR of ~7-8% in FY18-20E) in the northern region, we expect utilisation to firm up in coming years. A rise in trade sales should help improve realisations. Consequently, we expect revenues to increase at a CAGR of 13.0% in FY18-20E. Further, cost control initiatives like captive power plant, WHRMS and conveyor belt at Durg along with softening prices of some key cost components (like freight, petcoke) are expected to drive margins in FY18-20E. The recent correction in the stock prompts us to maintain BUY rating on the stock with a revised target price of Rs 375/share (i.e. at $65/tonne on FY20E capacity of 13.0 MT, 9x FY20E EV/EBITDA).
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