Buy JK Cements; target of Rs 1260: Cholamandalam Securities
Cholamandalam Securities’ research report on JK Cements
JK Cements is one of the largest cement players in North India. It manufactures grey cement, white cement and white cement based wall putty. Currently the grey cement capacity is 10.5MTPA. Domestic white cement capacity is 0.4MTPA (second only to UltraTech, which has capacity of 0.55MTPA). The company also manufacturers putty and has an installed capacity of 0.3MTPA. The company has also installed a grey cum white cement plant with an installed capacity of 0.6MTPA (white cement) and 1.02MTPA (grey cement) in Fujairah (UAE) in a 90:10 JV with the Government of Fujairah. It has also expanded its grey cement capacity by 3 MTPA through two split grinding units (1.5 MTPA each), one at Mangrol (Rajasthan) and another at Jhajjar (Haryana).
Increased capacity coupled with higher capacity utilization (due to expected improvement in Industry’s demand-supply dynamics mainly led by increase in infrastructure spending and affordable housing under Pradhan Mantri Awas Yojna) and strong margins from Grey cement business augurs well for JKCE going ahead. At CMP the stock trades at EV/EBITDA 9.9X and 8.3X FY18E&19E respectively. We rate the stock Buy with a price target of INR 1260 based on EV/EBITDA multiple of 10X FY2019E.
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