IIFL is bullish on JK Lakshmi Cement and has recommended buy rating on the stock with a target of Rs 433 in its June 27, 2014 research report.
"JKLCE, a Hari Shankar Singhania group company was incorporated in 1982 started operations by setting up a cement manufacturing plant in Sirohi, Rajasthan. The company has its 6.6mtpa capacity in Rajasthan, Gujarat and Haryana and 100 percent captive power capacity (54MW thermal power plant and 12MW waste heat recovery; JKLCE also has a tie‐up with VS Lignite to source power). JKLCE use pet coke for KILN and power production."
"JKLCE's capacity is located across Rajasthan, Haryana and Gujarat with North/West regions accounting for 62 percent/38 percent of sales. Post Durg plant expansion, each region (northern, western and eastern) is likely to account for one third of the sales. Pan‐India cement consumption is likely to grow 8‐ 12 percent over the next two years; assuming evenly spread growth rates across the five regions, north and western region could run into a minor deficit in FY17. We believe the up‐cycle witnessed in FY13 could repeat itself post H2 FY15 where demand push can boost realizations and hence earnings of the companies catering to these low surplus zones. JKLCE is enhancing its capacity to ~10mtpa by Q4 FY15; this would translate in to 15 percent volume CAGR over FY13‐FY16. This expansion includes 1) 2.7mtpa plant at Durg, Chhattisgarh by Q2 FY15, 2) revival of defunct cement capacity (adding 1.4mtpa by 1HFY15) at Udaipur Cement Works (JKLCE is likely to have a majority stake) and 3) 0.55mtpa grinding unit in Surat coming up in H2FY15 to boost blending ratio. Volume traction along with improvement in realization is likely to translate into 18 percent/24 percent revenue growth in FY15/16."
"Government emphasis on a) housing for all, b) 100 new cities, c) connecting major rivers and d) infrastructure development like building ports and roads is most likely to boost up cement demand in the coming year. As incremental capacity addition for industry slows down and demand picks up, it would lead to better capacity utilization for JK Lakshmi (JKLCE) and thereby support improved realizations. Company is enhancing its capacity from 6.6mtpa to 10mtpa in the current year and we expect it to be a major beneficiary of the anticipated volume traction in the northern, eastern and western regions; moreover supply surplus is at a minimum level in these areas. We factor in 44 percent earning CAGR over FY14-18 and recommend BUY with 2-yr price target of Rs433," says IIFL research report.
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