2 Cement Stocks To Buy According To ICICI Securities For Gains Up To 28%

JK Lakshmi Cement

In a 12-month target period, the brokerage has set a target price of Rs 785 on JK Lakshmi Cement, signifying a potential upside of up to 28 percent over the current market price of Rs 620.55. However, at the time of the buy call of the brokerage, the market price was Rs 615.

Q2FY22 Results:

“Owing to volume letdown and increased cost pressure, the results stayed poor. Revenues were up 7% to Rs 1118.2 crores led by sales realization growth of 10.3% YoY to Rs 4,820. Sales volume was down 2.9% YoY to 2.32 MT. EBITDA/t was down 10.3% YoY to Rs 701/t (vs. I-direct estimate of Rs 738/t). EBITDA margin was at 14.5%, down 333 bps YoY, 301bps QoQ. PAT of Rs 76.6 crore was down 5% YoY vs. (lower than the estimate of the brokerage: Rs 82.4 crore)” according to ICICI Securities.

Key triggers for future price-performance according to the brokerage:

• With expected utilisation of 94%+ for FY22E, volume growth to moderate going forward as the new capacity will come on stream only in FY24E.
• WHRS of 10 MW to get commissioned by Q3FY22 that should help contain power cost.
• B/s strength to remain strong despite newly announced Capital Expenditure (CAPEX) of ~ Rs 1400 crore for its subsidiary unit UCWL.

Target Price and Valuation:

JK Lakshmi’s share price has grown by ~2.5x over the past three years (from ~ Rs 331 in August 2018 to Rs 816 in July 2021). We value the company at Rs 785 i.e.10x FY23E EV/EBITDA and we remain positive on the company and maintain BUY rating, said the brokerage.

“While the company may remain laggard in terms of growth during FY21-23E due to delayed capacity expansion (likely commissioning Q3FY24E), the focus on strengthening b/s with significant debt reduction in FY22E remains key positive. Given constructive sector outlook, we maintain the positive stance of the company and retain our BUY rating with revised TP of Rs 785/share (@ 10x FY23EV/EBITDA),” the brokerage has said.

Shree Cement

The brokerage has set a target price of Rs 34,500 on Shree Cement stock, implying a potential upside of up to 18% over the current market price of Rs 29,220 in an estimated period of 12 months. Nevertheless, the market price at the time of the brokerage’s buy call was Rs 29,150.

Q2FY22 Results:

“Revenues were up 5% YoY on sustained higher realisations. Volumes were down 3.6% YoY on heavy monsoon and transporters strike in the east. EBITDA/t of Rs 1427/t (down 7.5% YoY) remained ahead of our estimates and PAT was up 5.6% YoY to Rs 577.7 Crore on lower tax, higher other income” said ICICI Securities.

Key triggers for future price performance according to the brokerage:

• Commissioning of a grinding unit of 3 MT in Maharashtra to take its domestic capacity to over 46.4 MT. The new clinker unit in Chhattisgarh (capacity of 12000t/day) to get commissioned by Q4FY22 (Capital Expenditure (CAPEX) of Rs Rs 1000 crore)
• New CAPEX includes setting up of a new integrated unit with 3.5 MT GU and 3.8 MT clinker unit in Rajasthan, 3 MT grinding unit in WB, 106 MW solar power at various locations with a total CAPEX of Rs 4750 crore till FY24E. Total domestic capacity to reach 53.4 MT post these expansions.
• The company will continue to maintain its cost leadership due to the structural advantage it has in terms of accessing raw materials and markets.
• The recent price hikes of 7-9% in October 2021 to sustain on the back of healthy demand and help recoup margins, to some extent.

Target Price and Valuation:

With volume-led expected revenue CAGR of 18.7% and expected RoCE of 20%+, we remain positive on the company. Hence maintain BUY rating and we value Shree at Rs 34,500 i.e.22x FY23E EV/EBITDA said the brokerage. “Cost leadership, a strong presence in north & east along with robust balance sheet justifies premium valuations, ICICI Securities further added.

Disclaimer

The above stocks are picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.