Why Should You Hold Portfolio Of This Largecap Cement Stock: Target Price At Rs. 2725

Top brokerage firm Emkay Global has given a hold rating to the stock of JK Cement. The Board of the company has approved cement-capacity expansion of 5.5mt and clinker capacity-addition of 0.66mt at a capex of Rs. 11.6bn (US$26/ton) over the next 2 years.

Stock To Hold: Target Price

The Current Market Price (CMP) of JK Cement is around Rs. 2940. Emkay Global has estimated a Target Price for the stock at Rs. 2725. This large-cap stock has a market capitalization of Rs. 22,604 crore. The 52-week high price of the stock is Rs. 3,659.25, while the 52-week low price of the stock is Rs. 2,003.70.

Quarterly earnings

JK Cement's Q2FY23 standalone EBITDA declined 16% YoY and 26% QoQ to Rs. 3bn, standing 7-10% above consensus' and our estimates owing to better-than-expected performance in the wall-putty and white-cement businesses. Blended EBITDA/ton fell 24% YoY/28% QoQ to Rs. 814. Grey-cement volume rose 10% YoY to 3.22mt, in line with our estimate, while grey-cement realization fell 7% QoQ (+5% YoY) to Rs. 4,838. Premium product sales stood at 9% (+100bps QoQ) of trade sales in Q2FY23. White-cement plus wall-care putty volumes rose 9% YoY.

Stock Valuation

The brokerage firm said, "The company has revised upward its capex guidance to Rs. 19bn/Rs. 14bn vs earlier guidance of Rs. 17bn and Rs. 11bn for FY23 and FY24, respectively. Net debt increased by Rs. 8bn in H1FY23, to Rs. 29bn as of Sep-22, and Management expects peak net debt of ~Rs35bn by Jun-23. Factoring-in the Q2 beat and higher volume growth with the capacity addition announcement, we increase our EBITDA estimates for FY24-25 by ~5%. We maintain HOLD on the stock, with a revised Sep-23 target price of Rs. 2,725/share. Our DCF-based-TP implies 1-yr forward EV/EBITDA of 11x."

Upside

the brokerage firm mentioned that the industry has witnessed price hike of Rs. 15-20/bag in the South and of Rs. 10/bag in the West post Sep-22. In the North, the extent of absorption of the Rs. 10/bag price hike taken in the past couple of days is awaited. The company has already planned for volumes from upcoming capacity in Panna and is hopeful of ramping-up the. Panna capacity within 6-9 months. Management maintained grey-cement volume growth guidance of 10% YoY for FY23.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.