Stocks to Buy Today: On 8 November 2023, the financial services firm ICICI Securities published the latest research report on JK Cement shares, assigning a ‘buy’ rating to the stock. The comprehensive analysis also provides valuable insights into the company’s financial health.
ICICI Securities is Bullish on JK Cement and has recommended a ‘buy’ rating on the stock with a target price of Rs 4138. Let’s take a closer look at their recommendations for the JK Cement share price target set by ICICI Securities.
JK Cement (JKCE) has delivered a surprisingly strong performance in the second quarter (Q2) of FY24, traditionally considered a weak period, by posting a notable margin increase of over 200 basis points. As a result, the company’s EBITDA for Q2 stood approximately 12% higher than anticipated, at around INR 4.5 billion.
Buoyed by this performance in the first half of FY24, as well as robust cement prices in its main markets in North and South India, we’ve upgraded our EBITDA forecast for FY24 by about 6%. However, our FY25 EBITDA estimates remain largely unchanged, and we’ve also introduced our FY26E EBITDA predictions, expecting over 9% year-on-year growth.
Digging into the details, JKCE’s grey cement volumes have impressively surged by 22% year-over-year, with a marginal increase in realisation. The white cement segment saw a slight dip in volume and realisation. Nonetheless, the company benefited from higher other operating income and reduced variable costs per ton, due to lower fuel costs, shorter lead distances, and seasonal discounts on rail freight, pushing the blended EBITDA per ton over 15% quarter-over-quarter.
Considering these factors and the anticipated margin improvements, we’ve tweaked our forecast for FY24E blended EBITDA per ton upwards by around 5%. We’re maintaining our FY25E EBITDA per ton at INR 1,134, and projecting an FY26E EBITDA per ton of INR 1,163, which suggests an approximate 3% annual growth.
JK Cement continues to be an attractive investment proposition for several reasons. These include the potential for efficiency gains from new waste heat recovery systems and a reduction in clinker factor, a peak in net debt levels with a downward trajectory expected from 2.6x in FY23 to 1.4x in FY25E, and sufficient free cash flow (FCF) to fund upcoming expansions, which are anticipated to be low-cost. Additionally, the company boasts an industry-leading return on equity (RoE) of around 16% and structural improvements in its regional and efficiency mix.
In light of these positive indicators, we maintain our valuation of JKCE at 15 times EV/EBITDA and continue to recommend a ‘BUY’ with a revised target price (TP) of INR 4,138, up from our previous TP of INR 3,856.
|Shareholding||Mar ’23||Jun ’23||Sep ’23|
|– Mutual Funds and Others||21.0%||21.9%||23.0%|
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