JK Lakshmi Cement, a manufacturer and supplier of cement and related products, has experienced a strong run in the last nine months, with its shares soaring by 107% from their 52-week low of ₹366.2 apiece to the current position of ₹755.
In CY22, the stock performed strongly, climbing from ₹578 apiece to ₹816.35, generating a stellar return of 41.23%. In December last year, the stock hit a record high of ₹896.
The stock has seen gains in five of the last seven months, with November being the best month with a rally of over 29%, followed by September's return of 24%.
In its latest December quarter earnings, the company reported a mixed performance, with higher fuel and power costs impacting profits, however, the overall numbers being positive.
The October-December quarter stood as another challenging period for the cement industry, as the companies were battling with high raw material costs since the start of the Russian-Ukrainian war in February last year.
JK Lakshmi on February 10 reported a 25.43% rise in its net profit at ₹74 crore for Q3FY23 compared to a net profit of ₹59 crore in the same period last year. Total revenue for the quarter came in at ₹1,489 crore, an increase of 24.81% from ₹1,193 crore.
Higher expenses have impacted the company's profitability during the quarter. The operating expenses soared to ₹1,329 crore from ₹1,047 crore in Q3 FY22, a surge of nearly 29%. However, the lower tax rate of 28% in Q3FY23 compared to 35% in Q3FY22 has supported the company's bottom-line margins.
During the quarter, JK Lakshmi Cement's sales volume (cement + clinker) increased to 2.6 million tonnes, registering a 6% YoY and 13% QoQ growth, and it reported blended realization per tonne of ₹6,028 against ₹5,910 YoY, up 3% YoY and 2% QoQ.
During the quarter, the company achieved a capacity utilization of 77%, and it expects a capacity utilization of 85% in the upcoming quarter.
Domestic brokerage firms remained bullish on the stock following the company's performance in the third quarter. Motilal Oswal said the company's operating performance was in line with their estimates.
The brokerage anticipates that capacity utilisation will increase from 77% in Q3FY23 to 85% in Q4FY23, while energy costs will remain consistent with the previous quarter. "The company has increased its focus on value-added products, which has helped it enter into high-growth products," said Motilal.
Motilal has maintained its "buy" rating on the stock with a target price of ₹850 apiece. It noted that the stock trades at 8.2x FY24E EV/EBITDA compared to its 10-year average- one-year forward EV/EBITDA of 9x.
Another brokerage firm, Axis Securities, said the company's superior positioning in the key markets of North, West, and East India, various initiatives such as the focus on the sale of premium and value-added products, a higher blending ratio and trade sales, and more use of green energy and direct dispatches are expected to enhance topline and margins.
"Cement demand in India remains robust on account of a higher government thrust on developing the country’s infrastructure as well as low-cost and affordable housing. Rural demand is also expected to revive moving forward. This will drive volume growth for the company at a CAGR of 7% over FY21-FY24E," said the brokerage.
Axis Securities maintained its "buy" call on the stock and lifted its target price to ₹840/share from ₹745 earlier, implying an upside of 11.5% from the CMP.
18 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.