Apr 11, 2012, 06.36 PM | Source: Moneycontrol.com
ICICIdirect.com has come out with its report on Heidelberg Cement and JK Cement.
, ICICIdirect.com |
Technical Outlook: The share price of Heidelberg Cement has remained in a major down trend over the past 24 months as exhibited in the below weekly price chart. Prices have been forming lower peaks and troughs and are currently hovering near the major resistance trend line An important observation on the price chart is that the January-February 2012 rally from Rs 25 to Rs 42 is backed by rising volumes indicating increased participation in the stock. Further, consolidation in the range of Rs 35-40 levels near the major resistance line over the past six to seven weeks, vouch for an underlying strength in the stock price. While the price retraced only 38% of the January-February gains, it has already equalled the time consumed by the rally. The entire consolidation over the past six weeks has happened above the 200 day moving average (Rs 34.50) highlighting the buying support near an important long term moving average. Lower volumes during consolidation also underline the Dow Theory principle that volumes should expand in the direction of the main trend. While the price is yet to pierce through the major resistance line, the 14 week Relative strength index (RSI) has surpassed its own resistance line indicating positive momentum. We, therefore, expect the stock price to continue the short-term uptrend and in the process pierce through major resistance around Rs 40-42 levels and rally towards next major resistance around Rs 53. A late mover within the cement pack, Heidelberg Cement offers an attractive risk reward set up and, hence, remains good medium term pick
Fundamental Outlook: Heidelberg Cement is a central region based cement player, with an installed capacity of 3 million tonnes (MT). The company is expanding its capacity by 3 MT to reach 6 MT by the end of Q2CY12. We expect cement sales volume to grow at ~26% CAGR during CY11-13E to 4.6 MT in CY13E from 2.94 MT in CY11. Total revenue is expected to grow at ~32% CAGR during CY11-13E. Margins are expected to improve, going forward, on account of an increase in realisation, backed by improvement in utilisation rates. EBITDA/tonne is expected to improve to Rs 383/tonne in CY13E from Rs 206/tonne in CY11. Net profit is expected to increase at ~54% CAGR during CY11-14E. At the CMP of Rs 38, the stock is trading at $49/tonne at its CFY13E capacity of 6 MT, which is ~60% discount to the replacement cost. We are positive on the stock and recommend it to our investors with a target price of Rs 51 per share.
Technical Outlook: After recording multifold gains from a low of Rs 31.25 in March 2009 to a high of Rs 201 in early 2010, the share price of JK Cement remained in a corrective mode till late 2011. The share price went into a consolidation mode between Rs 100 and Rs 120 levels in the last quarter of 2011 before reversing higher taking support precisely at the 61.8% Fibonacci retracement of the 2009-10 rally (Rs 35-202). JK Cement rallied for four consecutive weeks since mid January 2012 (Rs 100 154) followed by a narrow range (Rs 150130) consolidation over the last five weeks. The recent consolidation is taking the shape of a Bullish Flag continuation pattern, which indicates a momentary breather before resumption of the prevailing uptrend. In case of JK Cement, pattern completion would occur once the stock breaks above Rs 150 backed by escalated volumes. So far, the volume behaviour is in line with Dow Theory assumptions (expansion with price rise and declining during corrections) Lower volumes during consolidation are indicative of mild profit booking. The price has retraced the January-February gains by about 38% during recent consolidation. We expect JK Cement’s share to break past the resistance around Rs 148- 150 soon and rally towards the next hurdle around Rs 166, which is 61.8% retracement of the 2010-2011 decline (Rs 200-98)
Fundamental Outlook: JK Cement, with an installed capacity of 7.5 million tonnes (MT) in grey cement and 0.4 MT in white cement, has made its presence felt across all regions except east. It sells ~55% of its output in the northern region, ~20% in Central, ~15% in the west and ~10% in the south. The cement industry has been witnessing an improvement in demand for the past few months and is expected to remain firm, going forward. The rise in demand would help the company to increase its sales volume. We expect ~5% CAGR volume growth during FY11-13E. Also, the company has a captive power plant capacity of ~110 MW, which is self sufficient to meet its power requirements. Margins are expected to improve, going forward, on account of an increase in realisations, backed by improvement in utilisation rates. The EBITDA per tonne is expected to improve to Rs 820/tonne in FY13E from Rs 484/tonne in FY11. At the CMP of Rs 145, the stock is trading at $51/tonne at its FY13E capacity of 7.9 MT, which is ~60% discount to the replacement cost. We are positive on the stock and recommend it to our investors with a target price of Rs 161 per share.
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