Buy NCL Industries; target of Rs 210: ICICI Direct
ICICI Direct is bullish on NCL Industries has recommended buy rating on the stock with a target price of Rs 210 in its research report dated July 06, 2018.
September 18, 2018 / 03:37 PM IST
ICICI Direct's research report on NCL Industries
Andhra Pradesh and Telangana region (accounts for 80% of NCL’s sales) have been facing headwinds in terms of pricing. Our channel checks suggest prices in the southern region have fallen 7.3% YoY. In addition, although retail demand is improving, bulk of the demand is coming from infra led spending that is expected to keep prices under pressure. Further, we believe that recent capacity addition by the company will lead to volume push at the cost of pricing. This, coupled with higher input cost, led by an increase in pet coke prices and rise in diesel prices, is expected to dent EBITDA/t. This prompts us to revise our EPS estimates and target price downwards. However, the recent stock price correction has factored in most negatives and the stock is trading at an attractive valuation (cement business is trading at an implied EV/tonne of US$45/t). Hence, we maintain our BUY rating on the stock with a revised target price of Rs 210/share.Outlook
Hence, we maintain our BUY rating on the stock with a revised target price of Rs 210/share. We value the company on an SOTP basis. We assign EV/EBITDA multiple of 6.5x for the boards division on FY20E EBITDA while the cement business is valued at EV/tonne of US$50/t (far below the replacement cost).
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