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Chola Securities
JK Lakshmi Cement (Buy)
CMP: ₹266.6
Target: ₹347
JK Lakshmi Cement (JKLC) is a north Indian cement player, established in 1982. JKLC has clinker units in Sirohi, Rajasthan and grinding units in Rajasthan, Gujarat and Haryana. The current clinker capacity is 6.2 mtpa and cement capacity is 11.5 mtpa.
During 2QFY19, JKLC posted a volume growth of 13 per cent y-o-y to 21.3 lakh tonne including clinker sales of 0.26 million tonne. However, revenue rose by only 10 per cent y-o-y to ₹814 crore due to marginal decline in realization to ₹4,003 (-3 per cent y-o-y), while it was flat sequentially. The company has incrementally started to focus more on trade segment (giving higher utilisation) barring Gujarat (larger market for non-trade segment). RMC revenue this quarter was ₹39 crore.
Going ahead, JKLC's earnings growth is expected to be driven by i) Commissioning of new capacities and improved demand in northern region; ii) better realisation and improvement in margins on the back of cost saving initiatives (Thermal power plant and grinding unit).
We maintain a ‘buy’ rating on the stock, with a target price of ₹347, valuing the company, at an EV/tonne of $80/tonne. Risks: Slow down in economy, adverse movement in fuel prices and freight rates.
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