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Reliance Securities has a buy call on JK Lakshmi Cement with a target price of Rs 380.
The current market price of JK Lakshmi Cement is Rs 327.20.
Time period given by the brokerage is one year when JK Lakshmi Cement price can reach the defined target.
Investment rationale by Reliance Securities:Soft Sales Volume Restricts Revenue Growth: JKLC’s revenue grew by a mere 2.5 per cent YoY (+3 per cent QoQ) to Rs9.2bn led by muted 0.1 per cent YoY (+2.5 per cent QoQ) growth in volume to 2.29mnT.
Notably, a significant gap in non-trade and trade segment prices especially in Northern region restricted JKLC to push more volume due to low margins.
Further, RMC revenue stood at Rs420mn.
Dismal Realisation and Cost Inflation Mar Operating Performance: EBITDA declined by 22 per cent YoY (-7 per cent QoQ) to Rs939mn due to dismal realisation and spike in operating cost led by higher Power Fuel cost/tonne (+12 per cent YoY) and freight cost/tonne (+15 per cent YoY).
While average realisation rose by 2.4 per cent YoY (+0.5 per cent QoQ) to Rs4,038/tonne, operating cost/tonne grew by 6.2 per cent YoY (+1.8 per cent QoQ) to Rs3,627.
EBITDA/tonne stood at Rs410 vs.
Rs527 and Rs454 in 1QFY18 and 4QFY18, respectively.
Looking ahead, we believe likely improvement in Durg unit’s operational efficiencies and expected realisation recovery in key pockets are likely to aid JKLC’s operating performance in subsequent quarters.
Net profit stood at Rs137mn (-51 per cent YoY and -59 per cent QoQ).
Outlook Valuation: Considering the initiatives undertaken to improve operations in Eastern markets by means of CPPs and SGU in Odisha, we expect JKLC’s operating performance to witness improvement from FY19E onwards.
Current valuations of 8.1x EBITDA and US$57 EV/tonne for FY20E look attractive after recent correction.
We maintain BUY recommendation on the stock with a revised Target Price of Rs380 (9x FY20 EBITDA).
