Buy JK Cement; target of Rs 1220: Axis Direct

Axis Direct's research report on JK Cement

JK Cement’s (JKCE) Q2FY18 EBITDA at Rs 2.1 bn (up 30% YoY) was higher than our and consensus estimates, mainly due to strong volumes.  Operational performance: Grey cement continued its strong volume growth (17% YoY and 3% QoQ) despite monsoon – seasonally weak quarter). Average realization broadly flat QoQ at Rs 4,020/t. However, average cost/ton increased by Rs 230/ton due to high fuel and freight cost. Grey cement EBITDA/ton was Rs 550 (vs. Rs 690 in Q1FY18 and Rs 400 in Q2FY17).  White cement business reported EBITDA at Rs 1 bn (up 9% YoY) on higher volumes at 297 KT, up 9% YoY and 16% QoQ.

Outlook

We increase our FY18E/ FY19E EPS to Rs 52/71 (vs. Rs 46/64 earlier) to factor in strong sales volumes. Maintain BUY with revised target price of Rs 1,220 (13% upside to CMP of Rs 1,077) vs. Rs 1,144 earlier based on 10x FY19E EV/EBITDA.