Prabhudas Lilladher is bullish on JK Lakshmi Cement has recommended buy rating on the stock with a target price of Rs 350 in its research report dated August 10, 2020.
Prabhudas Lilladher's research report on JK Lakshmi Cement
JK Lakshmi Cement (JKLC) reported Q1FY21 earnings 5% above our estimates and in line with consensus estimates. The beat came on the back of lower other expenses. Strong profitability in North and Gujarat regions helped company to offset the weakness in Eastern region (25% of total volumes). Tight discipline, bottomed-out demand and limited capacity addition would help sustain margins in North and Gujarat regions. East region would witness flooding of capacity addition over next couple of years. However, we do not expect further deterioration in region’s margins given the wafer thin margins (with near nil RoCE) and likely consolidation. Commissioning of CPP, WHR and split grinding unit at Odisha further boosted the cost competitiveness of its East operations. Led by bottomed-out earnings in East operations (25% of volumes) and strong outlook on North and Gujarat region (combined 75%), JKLC’s earnings quality improved significantly over last couple of years.
Supported by attractive valuations (EV/EBITDA of 6.3x/5.5x FY21e/FY22e) and capacity addition led volume growth, we maintain BUY with TP of Rs350, EV/EBITDA of 6.5x FY22e.
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