Management believes that current cement prices are up by Rs 10 per bag from Q4FY20.
JK Cement share price gained 7.2 percent intraday on June 19 as brokerage houses remained bullish on the stock, expecting 8-17 percent rally after Q4 earnings beat estimates.
The stock has rallied 34 percent in the last one year and 50 percent from its March lows. It was trading at Rs 1,308, up Rs 61.75 or 4.95 percent, on the BSE at 1309 hours.
JK Cement's Q4FY20 results were significantly ahead of estimates, led by higher than expected realisations, JM Financial said. Revenue recorded a marginal decline of 1 percent YoY, as 6 percent growth in realisations offset the lost sales on account of COVID-19 induced lockdown.
Overall, volumes declined by 7 percent YoY. Realisations beat was primarily on reversal of provisions created for payment of incentives to channel partners, amounting to Rs 20-25 crore, it said. JM Financial valued the company at 9x FY22 EBITDA to arrive at a revised target price of Rs 1,350, implying 8.3 percent upside from current levels, while maintaining buy call.
Blended EBITDA per tonne at Rs 1,228 per tonne (versus Rs 971 per tonne last year) reported an improvement due to higher realisations.
Change in the product mix (higher grey cement proportion) and decline in petcoke/coal prices offset the impact of negative operating leverage, said the brokerage.
Net debt at Rs 1,600 crore is expected to peak at Rs 2,500-2,600 crore as company spends Rs 700 crore towards existing projects and Rs 150-250 crore towards maintenance capex, infusion in Fujairah and projects in pipeline, it said.
Looking beyond FY21, JM Financial expects the return ratios of JK Cement to improve as the newly commissioned capacities ramp up operations and the benefit of cost levers are realised.
HDFC Securities also maintained buy rating, with a target of Rs 1,425, a 14.3 percent potential upside, looking at the company’s grey cement capacity in lucrative north markets and as its white/putty profits continue to firm up (on a high base).
During Q4FY20, grey capacity ramp-up in north moderated COVID-led volume loss in Q4FY20. Grey segment's profit continued to soar in Q4 and in FY20 on robust pricing in north/central and falling energy costs.Similarly, "healthy pricing and low fuel cost even firmed up white/putty profitability in Q4/FY20. Thus, consol net debt/EBITDA in FY20 fell to 2.3x (from 2.5x), despite 6-year high capex spend," said HDFC Securities.
JK Cement reported a 18 percent year-on-year growth in Q4FY20 profit at Rs 160 crore on revenue of Rs 1,545 crore that declined 1 percent.Operating performance helped the company beat analysts' estimates. Operating profit grew by 22 percent to Rs 351.67 crore and margin expanded 440 basis points to 22.8 percent in Q4 compared to same period last year.
ICICI Securities, too, retained buy rating, with an unchanged target price at Rs 1,460 per share (implying 17.2 percent potential upside from current levels) following good numbers due to capacity expansion benefits.
Emkay also feels JK Cement's quarterly performance was above estimates, with EBITDA at Rs 352 crore versus its estimates of Rs 290 crore. It maintained hold rating on the stock, with a target of Rs 1,348, implying 8.2 percent potential upside, as the brokerage awaited for better entry points.
Management believes that cement prices are up by Rs 10 per bag from Q4FY20. It commissioned capacities of 3.5 million tonnes in FY20 and balance grinding unit of 0.7mt at Balasinor, Gujarat, will be commissioned in Q3FY21. Capex in FY21 will be restricted at Rs 500 crore.
Emkay raised its FY21/22/23 EBITDA estimates by 21.6/10.5/15.2 percent on better realization trends. "Cost-saving strategies have yielded results and it is further working on improving operational efficiencies at the North plant."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.