ICICI Direct is bullish on JK Lakshmi Cement has recommended buy rating on the stock with a target price of Rs 425 in its research report dated November 05, 2019.
ICICI Direct's research report on JK Lakshmi Cement
JK Lakshmi Cement reported strong growth in revenues and profitability in Q2FY20. However, while revenues beat our estimates, profitability during the quarter was below our forecasts due to higher production costs. The company reported 10% revenue growth to Rs 935.5 crore (above I-direct estimate of Rs 877.4 crore). Volumes remained in line with I-direct estimates at 2.06 MT, declining 3% YoY. Topline growth was driven entirely by 13.4% growth in realisations to Rs 4,540/t (I-direct estimates of Rs 4,280/t). EBITDA/t increased ~68% YoY to Rs 722/t while EBITDA margins expanded 513 bps YoY to 15.9% (vs. I-direct estimate of 21.3%) driven by strong growth in realisations. Accordingly, EBITDA saw an increase of 62.2% YoY to Rs 148.7 crore while PAT jumped ~5x YoY to Rs 45.9 crore in Q2FY20 (below I-direct estimate of Rs 83.3 crore) on the back of strong growth in operating profits as well as lower finance costs.
While the volume growth estimates have been revised on the lower side, the company has multiple triggers in its favour– improving profitability, reducing leverage on the back of strong cash flows. All these augur well for the company. Additionally, the company is trading at inexpensive valuations of 5.3x FY21E EV/EBITDA. Thus, we reiterate our BUY rating on JK Lakshmi Cement and maintain our target price of Rs 425/share.
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