JK Cements - New projects to drive growth; Buy - Anand Rathi

We expect JK Cements' 3QFY13 yoy revenue growth to be 1%. EBITDA however is expected to decline 18% yoy. Work on new plants of grey and white cement are on track for commissioning in Dec'14 and 4QFY14 respectively. A strong foothold in high-utilisation markets of the North, Central and West regions, steady cashflows in the white cement business and higher RoE are fundamental positives. We maintain our Buy rating.

- Dispatch growth subdued. Dispatches in 3QFY13 are likely to be flat yoy (down 10% qoq) to 1.37m tons, largely due to lower demand in the industry. Average realisation is expected to be flat yoy (down 3% qoq) to Rs.4,530 a ton. Accordingly, revenue is estimated to rise 1% yoy (down 13% qoq).

- EBITDA/PAT to dip 18%/22%. EBITDA is expected to drop 18% yoy (and 24% qoq) due to cost pressures (mainly from freight). We estimate blended EBITDA/ton of Rs.716 (against Rs.848 in the previous quarter and Rs.874 in the year-ago quarter). PAT is expected to drop 22% yoy (and 37% qoq).

- Rajasthan project to commercialise by Dec'14. Work on the 3m-ton grey cement project (split grinding units of 1.5 tons each in Haryana and Mangrol) at Mangrol, Rajasthan, will be completed by Dec'14. We expect high utilisation rates to continue in the plant's core markets of the North and Central regions. Also the planned 0.6m-ton plant in Fujairah, UAE, is on track for completion by 4QFY14; civil construction is in progress.

- Valuation. A multi-region, multi-product player, we expect JK Cements to be a 12m-ton company by Dec'14. Its operations in the high-utilisation markets of the North, Central and West regions, steady cashflows of the white-cement business and higher RoE are fundamental positives. At our target of Rs.403, the stock would trade at 6x FY14e EV/EBITDA. The target implies a PE of 9x and an EV per ton of US$80. Risks. A sharp spike in petcoke prices, drop in cement prices.

Source : Equity Bulls

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