Buy JK Cement - A C Choksi

JK Cement offers an exposure to high margin white cement business.

With growing urbanization and middle to higher income group having higher disposable income; demand for white putty & cement is expected to remain robust and is likely to growat 25% annually. JK cement has a white cement plant in Gotan, Rajasthan with a capacity of 0.4 million tonnes. The company is setting up greenfield white cement plant having capacity of 0.6 mtpa at Fujairah (UAE) to tap the market of Gulf.

Regional diversification, augmenting expansion plans to maintain its market share.

JK Cement caters to the Central & Northern region through its 4.5mtpa plants at Nimbahera (3.3mtpa), Mangrol (0.75mtpa) and Gotan (0.47mtpa)based in Rajasthan; it also caters to theWestern and Southern Regions through its 3mtpa plant in Mudhol, Karnataka. JKCL plans to augment its grinding capacity by 3mt (1.5mt each at Jhajjar, Haryana and Mangrol, Rajasthan).

EBITDA per tonne improving due to rationalization of cost of power.

Recent times JKCL has become cost efficient. We believe its power cost rationing to lead to an improvement in EBITDA per tonne from 653/tonne in FY 12 to 776/tonne in FY14E.We see the margins improving by ~170 bps in two year to 21.95%.

We initiate coverage with a BUY Rating on JK Cement with a target price of 286, valuing it usingEV/Tonne Method.

Source : Equity Bulls

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