After a 40 percent correcting from its 52-week high, brokerages now expect a sharp recovery in leading cement and building products manufacturers JK Cement.
While Motilal Oswal sees around a 71 percent rise in JK Cement and has a 12-month target price of ₹3,935 for the stock; Axis Securities expect an upside of 35 percent to ₹3,100.
From its 52-week high of ₹3,838, hit on November 8, 2021, the stock has lost around 40 percent to currently trade around 2,300 per share.
It hit its 52-week low of ₹2,135.30 on March 9, 2022, and has fallen 22 percent in the last 1 year.
As per domestic brokerage house Motilal Oswal, JK Cement is likely to continue to gain market share with improved profitability in grey cement backed by strong expansion plans and execution track record.
"While the company’s diversification into paint may raise capital allocation concerns, the segment would likely remain a relatively small business for the company and constitute less than 5 percent of capital employed, revenue and EBITDA over the next five years, in our view. We maintain 'Buy' with an unchanged target price of ₹3,935/share (14x FY24E EV/E)," it said in a recent note.
Meanwhile, Axis Securities believes that the company’s foray into the paint business should be viewed from a long-term perspective. With both Wall Putty and paint businesses having common attributes and influential networks, the paint business is expected to complement and support the growth of Wall Putty business moving forward.
Axis estimates the company to register Revenue/EBITDA/PAT CAGR of 12 percent/15 percent/21 percent over FY22-FY24E. It maintains a 'buy' rating on the stock and arrived at a target price of ₹3,100/share, implying an upside of 35 percent from the current levels.
Regarding the paint business, Motilal Oswal noted that the company may commercialise the proposed paint business in Apr’24 and it expects revenue of ₹100 crore-150 crore in FY25, inching upto ₹850 crore in the fifth year after launch.
"JK Cement is targeting 7-8 percent paint market share in North / Central regions by gaining market share from unorganised markets, penetrating into tiers-3 and 4 cities and leveraging the strong brand equity and distribution network," MOSL added.
Axis further stated that the company indicated to have a balanced approach while gaining market share in both the organised and unorganised parts of the business. The company would not go for price discounting to clinch market share as it has a very good presence in Wall Putty business in its core market and the paint business would also support the putty business moving ahead, it added.
"The company’s capital commitment is in line with its aspiration to become the leading regional player in its core markets and we expect significant benefits to accrue over a long period of time," Axis further said.
The current size of the paint industry In India works out to be between ₹55,000-60,000 crore and its core market accounts for 20-25 percent of the same. The company aims to target 9-10 percent of its core market to establish itself over some time. The company is targeting an EBITDA margin in the range of 15-16 percent from the paint business moving ahead.
In the December quarter (Q3FY22), the firm reported an increase of 74.82 percent in its consolidated net profit to ₹217.28 crore versus profit of ₹124.29 crore in the year-ago period. Its revenue from operations also jumped 24.52 percent to ₹1,832.71 crore during the quarter under review as against ₹1,471.78 crore in the year-ago period.
22 analysts polled by Mintgenie recommend a 'buy' rating for this stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.