Buy JK Lakshmi Cement; target Rs 340: ICICI Securities

ICICI Securities has a buy call on JK Lakshmi Cement with a target price of Rs 340.

The current market price of JK Lakshmi Cement is Rs 288.30.

Time period given by the brokerage is one year when JK Lakshmi Cement price can reach the defined target.


Investment rationale by the brokerage:
We believe JK Lakshmi Cement (JKLC) is likely to outperform its mid-cap peers given that:

(a) its cost structure is expected to improve with the commissioning of captive power plant at Durg and additional grinding unit at Odisha by Q4FY19E and an overall reduction in lead distance, coupled with the recent 10-15 per cent decline in various input costs such as petcoke, diesel, etc. and implementation of new axle load norms;

(b) its consolidated net debt of Rs 2,100 crore is expected to decline >30 per cent by FY21E as no major expansion is planned for next 12-18 months, and

(c) it enjoys better market mix operating with high utilisations (ex-South exposure). Our channel checks suggest average cement price increase of 1-2 per cent QoQ in Q3FY19E in JKLC’s key markets of North, Gujarat and Chhattisgarh vs the nearly flat to a marginal decline in prices in other regions.

We broadly maintain our FY19E-FY21E estimates and target price unchanged at Rs340/share, based on 8x Sep’20E EV/E. Valuation at 8xFY20E EV/E, or EV/te of US$60/te, remains attractive. Maintain BUY.