The brokerage has raised FY21/22/23E EBITDA by 21.6 per cent/10.5 per cent/15.2 per cent on better realization trends.
Emkay Global has given a hold rating to JK Cement with a 12-month target price of Rs 1,348. The share price moved up by 6.79 per cent from its previous close of Rs 1245.70. The stock’s last traded price is Rs 1330.25.
JKCE’s Q4 performance was above brokerage estimates, with EBITDA at Rs 3.5 billion against estimated Rs 2.9 billion and EBITDA/ton at Rs 1,298 versus brokerage estimate of Rs 1,019, led by 1) reversal of dealers’ incentives of Rs 200-250 million and 2) lower-than-expected increase in opex/ton.
The brokerage has raised FY21/22/23E EBITDA by 21.6 per cent/10.5 per cent/15.2 per cent on better realization trends. Cost saving strategies have yielded results and it is further working on improving operational efficiencies at the North plant.
Investment Rationale
The brokerage has increased FY21 volumes estimates by 8.1 per cent as sales volumes in Q1FY21 seem to be better than its earlier assumptions. The brokerage has factored in a volume decline of 30 per cent year on year in Q1FY21 vs. its earlier estimate of a decline of 50 per cent year on year. Cement prices have been better than its estimates and channel checks indicated a price increase of 7 per cent/14 per cent quarter on quarter in North/South markets.
Actual vs Estimates (Q4FY20)
Based on the current pricing trend, the brokerage has raised realisation assumptions by approximately 3 per cent each for FY21-23E. The management has guided for fixed cost reduction of Rs 50- 60 million/month. They expect further savings in freight costs (logistics cost-savings initiatives have yielded benefits with scope of further savings) and energy costs (after completing modernization of Kiln III at Nimbahera, Rajasthan).
Changes in volume and realisation estimates lead to EBITDA upgrade of 21.6 per cent/10.5 per cent/15.2 per cent for FY21/22/23E. EPS estimate for FY21E now stands at Rs 28.3 against Rs 9.6 earlier. EPS estimates for FY22/23E are being upgraded by 40.8 per cent/44.1 per cent.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1545.65 crore, up 5.02 per cent from last quarter sales of Rs 1471.78 crore and up .30 per cent from last year's same quarter sales of Rs 1541.03 crore. The company reported net profit after tax of Rs 160.82 crore in the latest quarter. Promoter/FII Holdings
Promoters held 58.06 per cent stake in the company as of March 31, 2020, while FIIs held 12.42 per cent, DIIs 23.77 per cent and public and others 5.75 per cent.
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