Sharekhan Bullish On Two Cement Stocks, Sees Significant Growth Potential

Leading brokerage firm Sharekhan is bullish on two cement stocks - The Ramco Cements Ltd and JK Lakshmi Cement Ltd. The stock-broking firm feels that the price will rally significantly. Both companies reported a good quarter performance. The details are given below.

Buy Ramco shares at a Target price of Rs 1,010
Q4FY2023 earnings strongly beat estimates, led by robust volume growth and higher operational profitability. Standalone revenues rose by 50.3% y-o-y at Rs. 2570 crore led by strong cement volumes (up 45.6% y-o-y) and higher blended realisations (up 3.6% y-o-y).

Blended EBITDA/ tonne of Rs. 851 (down 2.2% y-o-y, up 16.8% q-o-q) was higher than Sharekahn's expectation of Rs. 721, led by marginal beat on both blended realisations and opex on a per tonne basis. The company expects to achieve a 20% y-o-y volume growth for FY2024 on the back of resilient demand from infra and housing. Operational profitability to get a fillip from lower fuel costs from Q2FY2024.

The company's front-loading of capital expenditure for future expansions would entail lower costs for incremental organic expansions along with reviving return ratios. "We retain a Buy on The Ramco Cements Limited (Ramco) with a revised price target of Rs. 1,010, raising our valuation multiple considering strong earnings growth profile over FY2023-FY2025E," Sharekhan added.

Buy JKL shares at a Target price of Rs 850
JK Lakshmi Cement Limited reported a miss on operational performance for Q4FY2023, led by the higher purchase of stock-in-trade. Standalone revenue stood at Rs 1,729 crores (up 15.4% y-o-y), led by volume growth of 0.6% y-o-y at 3.06 million tonnes (however, cement sales volumes were up 11% y-o-y) and higher blended realisation (up 14.8% y-o-y at Rs. 5,644/tonne).

Standalone EBITDA/tonne at Rs. 617 (down 31.9% y-o-y) came in lower than stock-broking firm's estimate of Rs 755/tonne on account of higher raw-material costs (purchase of stock-in-trade). Hence, standalone operating profit/net profit declined by 31.5%/50.1% y-o-y to Rs 189 crore/Rs. 97 crore (much lower than the estimate).

Despite the miss, management remained optimistic about achieving Rs 1,000 EBITDA/tonne in FY2025, led by levers in realisations, logistics, and manufacturing. For FY2024, the company targets to achieve standalone cement volume growth of ~19% y-o-y and Rs. 800 blended EBITDA/tonne (Rs. 655/ tonne in FY2023). The company's cement capacity target of 30MTPA by 2030 remains intact.

"We upgrade JK Lakshmi Cement Limited (JKL) to Buy with a revised target price of Rs. 850, factoring upwardly revised estimates and considering favourable risk-reward at the current valuation."

Disclaimer
The stocks have been picked up from the brokerage reports of Shraekhan. Greynium Information Technologies, the author, or the brokerage firm will not 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.