Prabhudas Lilladher recommended accumulate rating on JK Lakshmi Cement with a target price of Rs 425 in its research report dated January 29, 2019.
Prabhudas Lilladher's research report on JK Lakshmi Cement
JK Lakshmi Cement (JKLC) posted Q3FY20 EBITDA came in line with ours/consensus estimates. Strong profitability in North and Gujarat regions helped company to offset the weakness in Eastern region (25% of total volumes). Tight discipline, bottomed-out demand and limited capacity addition would help sustain margins in North and Gujarat regions. East region would witness flooding of capacity addition over next couple of years. However, we do not see further deterioration in region's margins given the wafer thin margins (with near nil RoCE for next 3-4 years) and likely consolidation. Commissioning of CPP, WHR and split grinding unit at Odisha further boosted the cost competitiveness of its East operations. In spite of sharp run-up in the stock price, JKLC continues to remain attractively placed given better outlook on North and Gujarat region, improved margins and reasonable valuations. We increase our EBITDA estimates by 2%/4% for FY21e/FY22e to factor in better margins.
Outlook
We reiterate Accumulate with revised TP of Rs425 (earlier Rs380), EV/EBITDA of 8.5x FY21e (8x earlier).
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