Buy JK Cement; target of Rs 1040: Centrum

Centrum's research report on JK Cement

During Q1FY19, JKCE reported strong 9% volume growth across both grey and white/putty segments. However, weak pricing in grey cement (in JKCE markets) alongwith hardening input cost inflation dragged down total EBITDA, even though white/putty profitability firmed up on strong demand. Thus, EBIDTA fell 24% YoY and high capital charges led to 38% PAT decline.

Outlook

We cut TP to Rs 1040 (10x its FY20 consolidated EBITDA) on lower earnings estimate and on expectations of front ending of capex in FY20.  Key downside risks: lower-than-expected demand offtake, further spike in petcoke and diesel prices.