We maintain our ‘hold’ rating on JK Cement, as we see limited upside, and assign a target price of R312 a share.
JK Cement is on track to increase its grey cement capacity by 3 mtpa by Q2FY15, while the 0.6-mtpa white cement capacity in UAE is stabilising, providing volume visibility for FY15/FY16.
Factoring in the improved performance in Q4FY14, we are revising up our total Ebitda by 10% and 12% for FY15e and FY16e, respectively. We continue to value the grey cement segment at 5x EV/Ebitda and white cement segment at 7x EV/Ebitda.
The company’s Q4FY14 Ebitda of R163 crore surpassed our R97.8 crore estimate, led by outperformance in realisations, which surged 15% q-o-q versus our 9% estimate. Grey cement volume at 1.52 mt (flat y-o-y) was in line.
While realisations in North rose 18% q-o-q (our 15% estimate), those in South stood flat vs our estimate of a drop of 6% q-o-q.
Though grey cement volumes were flat y-o-y at 1.52 mt (in line), realisations surged 15% q-o-q versus our 9% estimate. While realisations in North surged 18% (our 15% estimate), in South, they were flat versus our estimate of 6% dip. Improved sales mix led to the realisation outperformance, which as per the management is sustainable.
With costs remaining controlled, Ebitda/t for grey cement stood at R660 versus our R238 estimate. Factoring in the improved performance in South, we are revising up our Ebitda/t estimate for this segment by 20%/ 24% for FY15/FY16, respectively.