Motilal Oswal has a buy call on JK Cement, target price Rs 1,450

Motilal Oswal has given a buy rating to JK Cement with a target price of Rs 1,450. The share price moved up by 6.92 per cent from its previous close of Rs 1245.70. The stock’s last traded price is Rs 1331.9.

According to the brokerage, J K Cement’s 4QFY20 results reflect the benefit of its high exposure to North India, a preferred regional market. EBITDA increased 24 per cent year on year due to higher realisation (7 per cent year on year) and decline in costs (4 per cent year on year) despite 7 per cent drop in volumes owing to the Covid-19 impact. The brokerage maintains its EBITDA estimates, but raised FY21/ FY22E EPS estimates to factor in lower finance costs on account of lower debt.

Investment Rationale

The brokerage expects JK Cement to deliver higher than industry EBITDA CAGR of 9 per cent in FY20-22E driven by 8 per cent volume CAGR on account of its expansion in the North.

Source: Motilal Oswal

The expansion not only improves its regional mix, which is in favor of North/Central India, but also helps it move down the cost curve by increasing the share of newer cost-efficient capacities. The brokerage has arrived at a target price of Rs 1,450/share valuing the white cement business at 10 times FY22E EV/EBITDA and the grey cement business at 8 times FY22E EV/EBITDA.

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.