Home / Market / Mark-to-market /  JK Lakshmi Cement turns the corner; expansions key

Shares of JK Lakshmi Cement Ltd touched a 52-week high of 455.45 on 8 August. The rally was driven by expectations of robust June quarter earnings, since cement prices in north India—a key revenue contributor for the company—saw a 14% increase. Cement prices in the north surged to 282 per 50kg bag on an average during the June quarter from 247 a year ago and JK Lakshmi Cement derives 43% of its revenue from the region, an ICICI Securities Ltd report pointed out.

A Bloomberg estimate saw the company’s stand-alone net profit and sales at 34.48 crore and 753.5 crore on a year-on-year basis, respectively. And while the mid-cap cement company exceeded estimates on the sales front and swung to profit from loss in the June quarter, the profit after tax figure was a miss.

In the June quarter FY 2017, sales rose 31.49% year-on-year to 871.82 crore and profit stood at 28.72 crore. Ebitda (earnings before interest, taxes, depreciation and amortization) margins improved by 639 basis points year-on-year to 14.67%, aided by lower freight, and fuel and power costs. A basis point is 0.01%.

JK Lakshmi Cement’s volumes grew by about 27% on a year-on-year basis to 2.11 million tonnes and average realizations per tonne grew by 4% year-on-year to about 3,400, the company’s management said. Volume growth on a regional basis was not available.

Going ahead, the stock will be on investors’ radar for its expansion plans. The company commissioned a grinding unit at Surat in April and a 1 million tonne capacity expansion in Durg. Ramp-ups will boost volumes and aid margins, but with expansion come depreciation and interest costs. It has to be seen how well JK Lakshmi Cement is able to service these expenses, caution some experts.

On a year-to-date basis, the stock has given nearly 35% returns, outperforming peers like JK Cement Ltd and Prism Cement Ltd. On the valuations front, the stock is more expensive than these competitors and is priced at a steep 43 times one-year forward earnings.

Meanwhile, a good monsoon is likely to give rural demand a fillip and the government’s thrust on infrastructure activities are the factors that make analysts bullish on the cement sector as a whole. JK Lakshmi Cement announced June quarter results post market hours on Thursday. In the long run, analysts expect the stock to keep up its outperformance.

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