Brokerage firm Motilal Oswal Financial Services has upgraded the stock of JK Cement (JKCE) to a 'buy' from a 'neutral', with a target price of ₹3,170, implying an upside of nearly 17%.
"We value JKCE at 13.5 times Sep’FY24E EV/EBITDA (premium to its five-year average one-year forward EV/EBITDA of 12.5 times) to arrive at our target price of ₹3,170, an upside of 17% from its current levels. We upgrade the stock to a buy from a neutral. Earlier, we had downgraded the stock to a neutral from a buy in Nov-21, considering rich valuations and looming concerns of input cost pressures," said the brokerage firm.
The brokerage firm said JKCE is set to increase grey cement capacity to 25mtpa by FY25. Over FY19-22, despite Covid headwinds, JKCE reported an industry-leading volume CAGR of nearly 12%, (grey cement) helped by capacity additions and diligent efforts towards brand visibility.
"We estimate grey cement volume CAGR of nearly 11% over FY22-25E," Motilal Oswal said.
"JKCE’s OCF will not be enough to support capex, and hence, borrowing will increase till FY24. We estimate the company’s net debt to peak out by FY24 and deleveraging to start from FY25. We estimate a net debt/EBITDA ratio of 2 times in FY24, which should improve to 1.6 times in FY25E," the brokerage firm added.
Motilal Oswal highlighted that the stock trades at 12.8 times and 10.8 times FY24 and FY25 EV/EBITDA, respectively, and EV/t of $134 and $103 FY24 and FY25E, respectively.
"We estimate further upside will be driven by (1) EBITDA growth (12% CAGR over FY22-25E); (2) improvement in profitability of grey cement business (estimate blended EBITDA/t of INR1,075/INR1,150 FY24E/FY25E); and (3) higher OCF, which will support expansion as well as deleveraging of its balance sheet," said Motilal Oswal.
According to a MintGenie poll, an average of 24 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.