Fundamental Radar: 5 reasons why this multibagger cement stock is a play on capacity expansion

JK Cement, part of the cement sector, has rallied more than 100% in the last 3 years and nearly 200% in the last 5 years is still a good buy on dips stocks as the midcap stock is set to increase grey cement capacity to 25mtpa by FY25E.

The cement industry is witnessing a demand revival with improvement in labor availability and rural demand, government’s thrust on infrastructure (aided by pre-election govt. spending), and steady demand from the housing segment.

This has helped cement companies raise cement prices over the last 2 months across regions.

JK Cement might have moved in a range in 2022 but experts see the stock heading towards Rs 3500 in the next 1 year.


Sneha Poddar, Associate Vice President at Motilal Oswal Financial Services gives 5 reasons why JK Cement is a top buy:

Fall in costs:
A fall in crude oil and other commodities could improve the profitability of the cement companies in the next few quarters.

Cement industry looking attractive:
Thus we are positive on the overall cement industry due to 1) better demand prospects led by the infrastructure and housing sector, 2)increased consolidation in the industry and 3) regulatory changes in the allotment of limestone blocks.

Capacity expansion:
In the midcap space, we like JK Cement. JK Cement is set to increase grey cement capacity to 25mtpa by FY25E. It recently completed the expansion of 4mtpa at MP & UP and announced further capacity expansion of 5.5mtpa in these states.

With this capacity expansion, the management is targeting a 9-10% market share in Central India.

Cost efficiency measures:
Thus, over FY22-25, we are estimating EBITDA CAGR of 13% over FY22-25, driven by cost efficiency measures and improvement in geo-mix.

Investment:
Sneha likes JK Cement as it has been consistently adding capacities, helping in its volume growth and diversification of its market mix. We have a buy rating with a target of Rs 3550 in the next 12 months.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)