ICICI Securities has given a buy rating to JK Cement with a target price of Rs 1,460. The share price moved up by 2.24 per cent from its previous close of Rs 1218.45. The stock’’s last traded price is Rs 1245.70.

As per JK Cement management, demand during Q1FY21E is being driven by rural / semi-urban areas; while urban demand is likely to remain weak as these regions are more impacted by Covid and also faces labour shortage. Fly ash is currently being sourced from distant markets owing to lower availability as fewer power plants are operational.

Investment Rationale

JK Cement’s Q4FY20 standalone EBITDA grew 24 per cent year on year to Rs 3.5 billion, above the brokerage and consensus estimates owing to better grey cement realisation which increased 10 per cent year on year / 6 per cent quarter on quarter against I-Sec estimate of 2.3 per cent quarter on quarter. Blended EBITDA/te rose sharply 34 per cent year on year to Rs 1,298/te against I-Sec estimate of Rs1,105/te). Recent commissioning of new capacity at Mangrol is likely to further improve cost structure / profitability. With the majority of the planned capex (Rs 12.4 billion) done in FY20, consolidated net debt has peaked out at Rs 23.3 billion in FY20 and is unlikely to increase over FY21-22E, in the brokerage view.

Source: ICICI Securities

Factoring in better realisation, the brokerage has raised FY21E-FY22E EBITDA by 6 per cent and EPS by 23 per cent and increased its target price to Rs 1,460 from Rs 1,260 earlier based on unchanged 9 times FY22E EV/E.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1545.65 crore, up 5.02 per cent from last quarter sales of Rs 1471.78 crore and up .30 per cent from last year's same quarter sales of Rs 1541.03 crore. The company reported net profit after tax of Rs 160.82 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 58.06 per cent stake in the company as of March 31, 2020, while FIIs held 12.42 per cent, DIIs 23.77 per cent and public and others 5.75 per cent.