Buy JK Cement; target of Rs 1166: Dolat Capital

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Dolat Capital's research report on JK Cement

JKCE posted a strong set of numbers with 19%/ 101.8%/ 211.8% YoY growth in revenue/ EBITDA/ APAT to `11.3 bn/ `3 bn/ `1.5 bn in Q2FY20 driven by strong 19.4% YoY/ 11% QoQ blended realization growth. We expect 15.1/ 20.3%/ 15.9% revenue/ EBITDA/ APAT CAGR over FY19-21E led by 8.9%/ 12.3% blended volume growth and 6.5%/ 1.8% blended cement realization growth in FY20E/ FY21E. We like JKCE because of its sizable presence in higher EBITDA margin (25-28%) contributing white cement & putty business. Moreover, its strategical expansion (4.2mtpa by FY20E) of its grey cement into strong pricing markets of north/central will benefit it. Considering JKCE’s healthy cash generation & RoE, D/E at 1x, and 4.2mtpa (40.1% increase) grey cement expansion, current valuation of 9.7x/ 8.7x for FY20E/21E EV/EBITDA is attractive.

Outlook

We recommend BUY with a TP of `1,166 (10x FY21E EV/EBITDA).

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