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Last Updated : May 26, 2020 01:48 PM IST | Source: Moneycontrol.com

Analysts bullish on JK Lakshmi Cement after strong Q4 operating performance

Emkay Global raised its FY21-23E EBITDA by 8-11 percent due to lower opex, which may remain subdued with lower petcoke prices and the commissioning of WHRS at Sirohi.

Sunil Shankar Matkar
 
 
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Brokerage houses continue to hold their bullish view on JK Lakshmi Cement and expect 24-77 percent potential upside after the company's strong operating performance in the March quarter. The stock rallied 6 percent intraday on May 26.

The stock plunged 51 percent during January 17 - April 7 and since then it recouped some losses to gain 22 percent till now. It was trading at Rs 220.75, up 5.72 percent on the BSE at 12:37 hours IST.

HDFC Securities Institutional Research has reduced its EBITDA estimates for FY21/22 by 4/4 percent each as it factored in higher impact of COVID-19 and built in EBITDA to decline at 3 percent CAGR during FY20-22.

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The brokerage valued the standalone cement biz at 8x FY22E EBITDA and valued its 72.5 percent holding in Udaipur Cement Works at 20 percent discount.

Thus, HDFC Securities' SOTP based target price remained unchanged at Rs 370 (implying 77 percent potential upside from current levels) but it continued to like JK Lakshmi Cement for its large presence in north markets and on increased cost controls.

Anand Rathi also retained its buy call on the stock with a target price of Rs 325 target (revised from Rs 296 earlier), implying 56 percent potential upside.

"The focus in the current context on de-levering before expanding capacity is good. Further, constant rationalising of logistic costs, greater petcoke consumption and the proposed 10MW WHRS at Sirohi would be great helps," said Anand Rathi.

Company's strong operating performance (higher realisations, cost savings) offset 16 percent YoY volume loss.

JK Lakshmi Cement reported better-than-expected Q4FY20 numbers, said ICICI Direct which has maintained buy call with a target of Rs 260 (implying 24 percent potential upside).

Company's Q4FY20 revenues fell 9.5 percent YoY to Rs 1,061 crore on account of a 15.1 percent drop in volumes YoY to 2.5 million tonnes.

Average realisations for the quarter were at Rs 4,242 per tonne as prices remaining high in north and west supported realisation growth, said ICICI Direct.

EBITDA margins of the company expanded 784 bps YoY to 19 percent while EBITDA per tonne increased 81 percent YoY to Rs 808 per tonne led by improved realisations and benign costs (freight costs, power & fuel expenses reduced 8.6 percent, 7.9 percent YoY, respectively, on a per tonne basis).

Absolute EBITDA increased 54 percent YoY to Rs 202 crore, and higher operating profit led to a sharp improvement in PAT, which increased 133 percent YoY to Rs 100.8 crore.

"Despite the weak scenario, the company's balance sheet would remain healthy, with D/E not expected to cross 1x. Return on capital employed (RoCE) and return on invested capital (RoIC) are expected to bounce back in FY22E to double digits. Furthermore, current levels imply that JK Lakshmi Cement is trading at an EV/t of $33 and 4.4x FY22E EV/EBITDA, thus providing valuation comfort and considerable margin of safety. Thus, we maintain buy rating on the company," said ICICI Direct.

CESC Research revised its rating to a buy, with a target price of Rs 284 (implying 36 percent potential upside).

"Going ahead, positive cash flow generation led by better operating performance and no meaningful capex in the near-to-medium term will aid JKLC to deleverage its balance sheet in subsequent years. JKLC guided to maintain its net debt to EBITDA ratio 1.0x," the brokerage said.

Emkay Global raised its FY21-23E EBITDA by 8-11 percent due to lower opex, which may remain subdued with lower petcoke prices and the commissioning of WHRS at Sirohi.

Valuations are attractive at 5.5x FY22E EV/EBITDA and EV/ton of $35, it feels. Hence it maintained buy call on the stock with a target of Rs 305, implying 46 percent potential upside.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on May 26, 2020 01:48 pm
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