Buy JK Cement; target of Rs 1175: Edelweiss

Edelweiss' research report on JK Cement

JK Cement (JKCE) reported a decent performance in Q1FY18 with EBITDA (at INR1.98bn versus INR2.1bn estimate) rising 13% YoY and PAT jumping an impressive 30%. Grey cement volumes grew ~7% YoY and realisations surged 9% QoQ, leading to EBITDA/t of INR686 (INR614 in Q1FY17). Given the low base of H2FY17 and factoring current stable price trend, we see limited risk to our 7% volume growth and INR587 EBITDA/t FY18 estimates for the segment. GST implementation-led destocking impacted white cement with volume staying flat YoY (putty sales growth slowed to 6% versus 17% in FY17). Given the pricing pressure, the segment’s EBITDA dipped 9% YoY. In line with management’s guidance, we stay optimistic on recovery in ensuing quarters. Retain ’BUY’ with TP of INR1,175 (10x FY19E EBITDA).

Outlook

We continue to like JKCE as it is likely to be one of the beneficiaries of anticipated price and demand uptick in North. Steady volumes and EBITDA growth in white cement cushion downside risks, if any, from price volatility in grey cement. With RoE of over 20% in FY19E, we continue to value JKCE at 10x FY19E EBITDA and maintain ‘BUY/SO’ with TP of INR1,175.