BSE 500 Stock Is Axis Securities’ Top Pick of The Week Despite 17% YTD Fall: Here’s Why

JK Lakshmi Cement's shares, a BSE 500 firm, started lower on Monday at Rs. 670.05 per share and were trading early in the session at a negative gap of 1.67% at Rs. 664.20. The mid-cap cement stock has experienced sell-off pressure on a YTD basis, down 16.08% so far in 2023 and 17.28% over the previous six months. The brokerage company Axis Securities, however, has selected the stock as its top stock preference for the week with a target price of Rs. 745, which implies a potential upside of 12%.

In its primary markets of North and West India, JK Lakshmi Cement (JKLC) dominates the cement industry and receives 75% of its revenue from these two areas. Additionally, it has a substantial market share in Eastern India. On a consolidated basis, the firm has a total annual cement capacity of 13.9 million tonnes (mtpa).

JK Lakshmi Cement Financials

JK Lakshmi Cement revealed that its consolidated net profit for the April to June quarter of fiscal 2023-24 (Q1FY24) fell by 30% to Rs. 79.7 crore from Rs. 115 crore in the same quarter the previous year. In the first quarter of the current fiscal year, the cement manufacturer's revenue from operations totalled Rs 1,730.25, up around 5% from Rs 1,654.14 crore in the comparable period of last year. Consolidated net sales for the company were Rs 1,730.25 crore in Q1FY24 as opposed to Rs 1,654.14 crore in Q1FY23. When compared to Rs 425.9 crore during the same period previous year, its EBITDA for the June quarter was Rs 196.3 crore, a drop of Rs 53.9%. Margin plummeted to 11.3% in Q1FY24 from 25.8% in the same quarter last year.

Investment Rationale

Capacity expansion to drive higher revenue growth: According to Axis Securities, the company's ongoing capacity expansion of 2.5 mtpa Grinding unit and 1.5 mtpa Clinker Unit at its subsidiary UCWL (Udaipur Cement Works Ltd.) is progressing well. The grinding unit will get operational in Q1FY25, while the Clinker unit will commence in Q3FY24. This expansion is expected to increase the company's volume growth moving forward. The company also aims to expand its total cement manufacturing capacity on a consolidated basis to 30 mtpa by FY2030. Against this backdrop, we expect it to grow its revenue at 10% CAGR over FY23-FY25E.

Higher trade sale and Blended Cement production to improve EBITDA/tonne: The company is working on many levers such as optimizing geo-mix, higher production and sale of blended cement, increasing proportion of trade sales, premium and value-added product, logistic efficiency, and use of more renewable power to increase its EBITDA/tonne to four-digit number in the next 12 to 18 months. We expect the company to post EBITDA/tonne growth at a CAGR of 14% over FY23-25E to Rs 850/tonne. This will be driven by stable realization, higher volume, and several cost-saving initiatives, according to the brokerage firm.

Guidance of double-digit volume growth in FY24: Cement demand in India remains robust on account of higher government thrust on developing the country's infrastructure as well as low-cost and affordable housing. Revival of private capex and robust real estate will also aid in increasing Cement demand. The company has guided for double-digit volume growth in FY24. We estimate volume growth at 9% CAGR over FY23-FY25E, said Axis Securities in a note.

JK Lakshmi Cement Valuations

"The company's topline and margins are expected to enhance on account of its superior positioning in the key markets of North, West, and East India along with its various initiatives such as its focus on increasing sales of premium and value-added products, higher blending ratio and trade sales, more use of green energy and direct dispatches. We expect JKLC to report Revenue/EBITDA/APAT CAGR of 10%/24%/29% respectively over FY23-FY25E. Stock is currently trading at 9x and 7x FY24E/FY25E EV/EBITDA, which we believe is attractive. We recommend a Buy the stock for a target price of Rs 745/ implying an upside of 10% from CMP," said Axis Securities in a report.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.