Broking house, Citigroup Global Markets is bullish on JCT and has recommended buy rating on the stock with a target of Rs 10.

Citigroup Global Markets report on JCT:

Buy: Capex Delayed but Expect Strong EPS Growth

“Delays in expansion and modernization of facilities are slowing the pace of a turnaround, deferring earnings growth to FY08-09E. We have therefore cut our target price, to Rs10, and estimates, but still forecast a robust EPS CAGR of 77% over FY06-09.”

Capex delayed, but progress appears promising

“Initial hiccups in raising funds from FCCBs delayed capex of Rs3bn by 12 months. The company plans to modernize integrated textile facilities, enter polyester fabric exports and expand into nylon yarn. With the funds now in place, management hopes to complete these plans over the next 15 months - a positive, in our view.”

Textile outlook remains strong

“Focus on a rich product mix in fabrics (51% of FY06 revenues), significant savings in power costs (15% of sales) and improved efficiencies should further improve profitability and expand overall margins. We forecast EBITDA margin to increase from 4.5% in FY06 to 16.0% by FY09.”

Nylon yarn business under pressure

“Because of volatility in crude prices and stiff competition from polyester yarn, which is limiting pricing increase, profitability of nylon yarn (40% of FY06 revenues) is under pressure. JCT's efforts to backward integrate and cut power costs should provide some relief.”

Potential price triggers

“(1) Accelerated turnaround; (2) timely execution of capex plans; and (3) benefits from a recent approval for carbon credit sales for a newly commissioned 5.5MW captive power plant - not yet in our estimates.”