ICICI Direct recommended hold rating on JK Cement with a target price of Rs 759 in its research report dated February 06, 2019.
ICICI Direct's research report on JK Cement
JK Cement’s revenues were better than our estimates at Rs 1,273 crore (vs. I-direct estimate: Rs 1211 crore) up 13.1% YoY led by 7.5% growth in volumes to 2.5 MT (vs. I-direct estimate: 2.42 MT). Blended realisations were up 5.1% at Rs 5,097/t (vs. I-direct estimate: Rs 4,992/t) With healthy realisations and better operational efficiency, EBITDA/t grew 15% to Rs 843/t (vs. I-direct estimate: Rs 792/t) while EBITDA margins expanded 142 bps YoY to 16.5% (vs. I-direct estimate: 16%) Though operating performance was better-than-expected with EBITDA at Rs 210 crore (vs. I-direct estimate: Rs 194 crore), PAT missed our estimates and fell ~16% YoY to Rs 60.9 crore (vs. I-direct estimate: Rs 79.9 crore) led by higher tax expense during the quarter (up 193% YoY).
Outlook
A revival in the rural economy, higher infra spends and likely price hike post festive season are expected to be key drivers of revenue growth in the near term. However, aggressive capacity expansion by the company (planning to expand its capacity by 40%) will increase its debt by more than Rs 1,000 crore. In addition, a high cost environment will limit margin expansion. We believe this will keep return ratios under pressure, going forward, till new capacities stabilise. Hence, we maintain HOLD rating with a target price of Rs 759/share (i.e. at 9.0x FY20E EV/EBITDA, $90/tonne on FY20E adjusted capacity of 16.5 MT).
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