Buy JK Cement; target of Rs 5600: Motilal Oswal

Motilal Oswal is bullish on JK Cement recommended buy rating on the stock with a target price of Rs 5600 in its research report dated September 20, 2024.

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September 23, 2024 / 11:00 IST

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Motilal Oswal's research report on JK Cement

JK Cement (JKCE) has been strategically expanding capacity using a balanced approach of improving the regional mix, lowering capex, and ensuring an adequate spread of integrated and grinding units. Further, the company has been successful in ramping up capacity utilization of its new plants. Recently, JKCE has unveiled its long-term capacity target of 50mtpa by FY30 vs. 24mtpa currently, which was in line with our estimates. The company’s next leg of expansion will be fairly spread across regions, including greenfield expansion of 6mtpa in Jaisalmer (North) and brownfield expansion of 6mtpa in Panna Line-III (Central), 5mtpa in Muddapur (South) and 3mtpa in Odisha (East). The company’s cost structure has improved with continuous capacity expansion and upgrade works, which helped to reduce energy consumption, optimize logistics costs and drive positive operating leverage. Further, the company has initiated various cost saving initiatives, including an increase in green power share and thermal substitution rate (TSR) by 10% (each) and a reduction in lead distance by 15km. With these initiatives, JKCE estimates cost savings of INR150-200/t in the next two years.

Outlook

The stock currently trades at 14x/11x FY26E/FY27E EV/EBITDA (vs. its five-year average one-year forward EV/EBITDA of 13x). Considering JKCE’s increasing scale of operation, better execution strategy and cost reduction initiatives, we value it at 15x Sep’26E EV/EBITDA to arrive at our TP of INR5,600. We reiterate our BUY rating on the stock.

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