Prabhudas Lilladher recommended hold rating on JK Lakshmi Cement with a target price of Rs 360 in its research report dated August 06, 2018.
Prabhudas Lilladher's research report on JK Lakshmi Cement
JK Lakshmi Cement (JKLC) reported Q1FY19 earnings in line with our estimates. Volume remained muted with flat growth due to deliberate withdrawal of volumes from low margin non-trade segment and lower availability of rakes affecting the clinker volumes. JKLC succeeded to contain steep increase in pet coke cost with continuous improvement in energy efficiency and commissioning of 7MW Waste Heat Recovery (WHR) at Durg plant (20% of total volumes). Energy cost would further rationalise post commissioning of 20MW CPP at Durg plant. However, the outlook on prices in its key markets remains weak due to continuous capacity addition, likely revival of capacities under distress and structural issues.
Hence, we expect margins to remain under pressure with EBITDA/t at Rs570 in FY20e despite cost savings from investments made on CPP, WHR and 0.6mtpa grinding unit in Odisha. We downgrade the stock to Hold (with TP of Rs360) due to weak earnings quality and unattractive valuations.
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