Buy This Small Cap Cement Stock For 17% Potential Gains: Axis Securities

Leading brokerage firm Axis Securities in its recent report has suggested "buy" JK Lakshmi Cement Limited for a target price of Rs 680. JK Lakshmi Cement is a small cap cement major having a market cap of Rs 6,861.34 crore. JK Lakshmi Cement Limited is a part of the prestigious JK Organisation.

The brokerage sees potential gains of 17% considering the given target price and the current market price.

Stock Outlook & Returns

The Current Market Price (CMP) of JK Lakshmi Cement on NSE is Rs 583 apiece, 0.36% down from its previous close at the time of writing. Its 52-week low is Rs 366.25 recorded on 17 May 2022, and the 52-week high is Rs 684.50 recorded on 20 September 2022, respectively.

The stock in the past 1 week has surged 3.72%, whereas, in the past 1 and 3 months it gave 24.06% and 39.7%, respectively. Over the past 1 year, it gave 6.86% negative return. However, in 3 and 5 years, it gave 93.89% and 51.22% positive returns, respectively. 
 

Capacity Expansion

The company aims to reach Cement manufacturing capacity of 30 mtpa by 2030 on consolidated basis. The roadmap for capacity expansion is as under:

a. On going capacity expansion at its subsidiary UCWL (Udaipur Cement Works Ltd) of 2.5 mtpa Grinding unit and 1.5 mtpa Clinker Unit progressing well and will get operational in March, 2024.

b. The company is planning to expand further UCWL capacity by 3 mtpa and putting 2nd line of 3 mtpa at its unit in Durg, Chhattisgarh. The company has suffcient reserve of limestone to facilitate these expansions. In due course the company will come up with the definite time line for these expansions.

c. The company has won limestone mines at Gujarat and Rajasthan. It is planning to set up 3 mtpa each greenfield unit in these location . Land acquisition process is underway.

d. The management indicated that above capacities would come one by one with proper assessment of demand and supply. As a strategy the company would be focusing on their existing markets of North, West and East region. 

 

Grinding Unit In Amethi, UP

The company has hired a grinding unit in Amethi, UP with a capacity of 1.5 mtpa . The despatch from this unit started in July, 2022 and initial response has been encouraging. The company aims to sale 1 mtpa of Cement by March,2023.This unit will be used to produce 100% blended cement and will cater to only trade segment. The company will push its premium brand in the market particularly from this unit. 

Cost Optimization

The company is focusing on many levers of cost optimization with increasing use of green energy and AFRs. The company aims to substantialy increase use of green energy from current 30% to 50% and 80% by FY2025 and FY2030. It is also increasing its Solar power capacity. In order to lower freight cost, it is focusing more on direct dispatches. 

Trade sale and Blended Cement

It is working on to increase the proportion of trade sale to 70% from current 55% and this will happen over a period of time. Similarly it is also planning to produce more blended Cement and aims to take blended Cement sale to 75% over a period of time. Premium Cement sale to also increase from 30% to 45% . 

Management Guidance

The management expect a volume growth CAGR of 7-8 percent in next 3-4 years driven by higher demand and higher Cement consumption. 

Value Added Product

The company is focusing on increasing the sale of VAP product like RMC(Ready Mix Concrete), AAC (Autoclaved Aerated Concrete), Wall Putty by setting up additional plant. It aims to take the sale of VAP to Rs 1000-1500 Cr in next 18-24 month from current Rs 370 Cr.

Outlook & Valuation

H1FY23 will be impacted owing to elevated cost, H2FY23 will see the positive impact of lower commodity prices along with higher demand and realization. "We expect the company to deliver Revenue/EBITDA/APAT growth of 16%/11%/20/% CAGR over FY21-FY24E. Currently, the stock is trading at 7.5x and 6x FY23E and FY24E EPS. We value the company at 7x FY24E EV/EBITDA to arrive at the TP of Rs 680/share, implying an upside potential of 18% from the current levels," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.