Hold J K Cement; target of Rs 710: ICICIdirect

      ICICIdirect.com's report on J. K. Cement

JK Cement’s Q1FY16 revenues increased a mere 1.2% YoY to Rs 810.7 crore (below I-direct estimate of Rs 932.2 crore) led by pricing pressure in the north and south regions (especially Maharashtra). Average realisation for the quarter declined 3.3% YoY while volumes during the quarter grew 4.6% YoY due to capacity expansion

The blended EBITDA/tonne declined 18.1% YoY to Rs 466/tonne (below I-direct estimate of Rs 739/tonne) mainly due to a poor pricing environment coupled with higher RM & employee cost per tonne. White cement EBITDA/tonne also declined 7.3% YoY to Rs 2,410/tonne

The company reported a net loss of Rs 1.1 crore at the PBT level led by a weak operating performance, higher interest cost and depreciation expenses. However, due to tax credit of Rs 1.3 crore, the company reported a net profit of Rs 16 lakh

"With incremental cash generation from new capacity, we expect debt levels to peak out in FY15. However, a domestic slowdown in demand would likely drag overall profitability of the company during H1FY16. At the CMP of Rs 662, the stock is trading at 11.8x its FY16E and 9.2x its FY17E EV/EBITDA, respectively. On an EV/tonne basis, the stock is trading at $100 on FY17E capacity of 11.7 MT. Although we remain positive on the company from a longer-term perspective, moderation in domestic demand and slowdown in GCC remain near term concerns. Hence, we maintain HOLD rating with a revised target price of Rs 710/share (i.e. at 10x FY17E EV/EBITDA, $105/tonne on FY17E capacity (11.7 MT)", says ICICIdirect.com research report.

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