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Reliance Securities
JK Cement (Buy)
CMP: ₹690.9
Target: ₹985
JK Cement has reported a decent performance in 3QFY19, which is broadly in-line with street’s estimates but lower than our estimate. Its EBITDA grew by 15 per cent y-o-y (+24 per cent q-o-q) to ₹195 crore (versus our estimate of ₹210 crore) led by about 1.4 per cent q-o-q decline in average realisation for grey cement (against our estimate of flat realisation). Blended EBITDA/tonne stood at ₹782 versus ₹733 and ₹729 in 3QFY18 and 2QFY19, respectively.
Despite increase in input cost (RM + Power & Fuel), operating cost/tonne declined 1.4 per cent q-o-q (+3.4 per cent y-o-y) to ₹4,255 mainly due to unitary reduction in other expenditures and employee cost. Adjusted for ₹25.4 crore deferred tax for previous year, its APAT grew by 18 per cent y-o-y and 33 per cent q-o-q to ₹86.3 crore. Brownfield expansion at Mangrol and Nimbahera (2.5 million tonne clinker and 2 mt cement) and SGUs at Western UP (1.5 mt) and Gujarat (0.7 mt) are moving as per schedule, which will aid the company to consolidate its position in these markets along with sustainable volume growth.
Trimming our EBITDA estimate by 4 per cent both for FY20E/FY21E to factor in dismal realisation, we maintain our ‘buy’ recommendation on the stock with a revised target price of ₹985 (from ₹1,000 earlier).
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