Buy JK Cements; target of Rs 884: Cholamandalam Securities

Cholamandalam Securities' research report on JK Cements

JKCE’s revenue (excluding other operating income) remained flat at INR 10.9bn (-0.4% YoY), during 2QFY19 with blended volumes falling 2.9% YoY to 2.16mn tonnes. However, blended realizations improved by 2.5% YoY, this quarter. Grey cement realization for the quarter stood at ~INR 4,022, up 1.6% YoY, and white cement (including wall putty) realization was up 4.0% YoY at ~INR 11,719. Grey cement volume declined 3% YoY to 1.87mn tonnes and white cement (including wall putty) volume was down 2% YoY to 0.29mn tonnes. Despite reporting weak sales volume, the Management is optimistic of meeting 7% volume guidance which it had previously given for FY19E. This will be aided by the launch of a premium product ‘JK Super Strong Cement’ in the northern regions (currently present in southern zone).

Outlook

We maintain BUY rating on the stock, with a revised target price of INR 884 assigning a multiple of 10X on EV/EBITDA of FY20E.