We believe Cement to be the best play on the expected economic recovery in the domestic market in the years to come. Cement industry by virtue of its nature is largely driven by the domestic demand and being a local commodity it is largely insulated from the international prices.
Though, the there is excess capacity to the tune of ~100 MnT in the Indian market and the capacity utilization is running at ~70-73%, ex-South the capacity utilization remains quite favorable at ~85% and hence the north based Cement players have been operating at healthy EBITDA margin. We don’t see major improvement in the demand scenario in the southern market in the near term. However, believe that the north and west based players will continue to operate at strong margins and hence we are Bullish on selective Mid-Sized Cement Players operating in the Northern & Western Geography of India. Our top Pick Remains – JK Cements Ltd. We had initiated BUY call on JK Cement Ltd at Rs.488, and currently it is sitting on gain of 22 % since then (CMP Rs.595). Subsequently we studied JK Lakshmi Cement Ltd and feel that it is overvalued compared to JK Cement Ltd. We have valued JK Lakshmi Cement Ltd at 9x its one year EBITDA, and JK Cement Ltd at 7.5x one year EBITDA. Despite assigning a higher valuation multiple to JK Lakshmi compared to JK Cement, we believe the current price of JK Lakshmi is overvalued and hence we recommend switching over from JK Lakshmi Cement Ltd to JK Cement Ltd. Both JK Cement as well as JK Lakshmi Cement has seen sharp run up in the last one year. However, we believe JK Cement Ltd (CMP, Rs 595) is still attractively valued, while JK Lakshmi Cement Ltd looks expensive at current levels (CMP Rs.377). On the estimates front, we have taken higher realization growth in case of JK Lakshmi Cement Ltd compared to JK Cement. However, the volume growth is expected to be higher in case of JK Cement due to commencement of new facility as per schedule (1.5 Mn Tons capacity in Mangrol, Rajasthan started on 30th Sept,2014 i.e 16% incremental capacity additions on top of 9 Mn Tons, existing) and improvement in utilisation levels of it’s Karnatak plant. -- -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no guarantee for the genuineness of the same."ANY member of this forum doesnt prepare or publish any research report; or ii. provide research report; or iii. make 'buy/sell/hold' recommendation; or iv. give price target; --- You received this message because you are subscribed to the Google Groups "Niftyviews.com" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/d/optout.
