ICICI Direct is bullish on JK Lakshmi Cement has recommended buy rating on the stock with a target price of Rs 260 in its research report dated May 21, 2020.
ICICI Direct's research report on JK Lakshmi Cement
JK Lakshmi Cement reported better-than-expected Q4FY20 numbers. Revenues for Q4FY20 fell 9.5% YoY to Rs 1,061 crore (vs. I-direct estimates of Rs 910 crore). Revenues declined on account of a 15.1% drop in volumes YoY to 2.5 MT (vs. I-direct estimate of 2.11 MT). Average realisations for the quarter were at Rs 4,242 per tonne (vs. I-direct estimate of Rs 4,320/t). Prices remaining high in north and west supported realisation growth. EBITDA margins of the company expanded 784 bps YoY to 19% while EBITDA/t increased 81% YoY to Rs 808/t (vs. I-direct estimate of Rs 650/t) led by improved realisations and benign costs (freight costs, power & fuel expenses reduced 8.6%, 7.9% YoY, respectively, on a per tonne basis). Absolute EBITDA increased 54% YoY to Rs 202 crore (vs. I-direct estimate of Rs 136.9 crore). Higher operating profit led to a sharp improvement in PAT, which increased 133% YoY to Rs 100.8 crore (vs. I-direct estimate of 35.6 crore).
Despite the weak scenario, the company’s B/S would remain healthy, with D/E not expected to cross 1x. RoCE and RoIC are expected to bounce back in FY22E to double digits. Furthermore, current levels imply that JK Lakshmi Cement is trading at an EV/t of $33 and 4.4x FY22E EV/EBITDA, thus providing valuation comfort and considerable margin of safety. Thus, we maintain BUY rating on the company. Valuing JK Lakshmi Cement at 5.5x FY22E EV/EBITDA, we arrive at a target price of Rs 260/share.
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