New market entry boosts JK Cement stock prospects, Citi reaffirms Buy rating

On Monday, Citi analysts increased their price target on JK Cement Ltd (JKCE:IN) shares to INR 5,450 from INR 4,900, while reiterating a Buy rating. The revision follows JK Cement's third-quarter earnings, which revealed an EBITDA of INR 4.9 billion, a decrease of approximately 20% year-over-year. Despite this yearly drop, the company saw a substantial quarter-over-quarter increase of around 80% in EBITDA.

The third-quarter performance exhibited a slight rise in volumes year-over-year by 3.4%, while realizations decreased by around 6% and costs by approximately 1%. The EBITDA per ton reached INR 1,040, compared to INR 649 in the previous quarter and INR 1,335 in the same quarter of the previous fiscal year. Citi highlighted that the better-than-expected results were due to lower than anticipated costs and increased incentive or other operating income.

Additionally, JK Cement has recently undertaken a strategic move by acquiring a 60% stake in Saifco Cement, which operates a 0.42 million tons per annum cement plant near Srinagar, Jammu & Kashmir. The acquisition, valued at an enterprise value per ton of $96, is seen as a strategic entry into the Jammu & Kashmir market for JK Cement. This move is expected to bring benefits such as improved utilization, cost efficiencies, and stronger brand presence.

Citi analysts pointed out that JK Cement is currently trading at an enterprise value per ton of $145, which is within its three-year historical range of $115 to $200 per ton. With the anticipation of an increase in cement demand in the fourth quarter and positive medium-term growth prospects, the firm's stance on JK Cement remains positive. The new price target of INR 5,450 reflects these expectations and the recent strategic acquisition.

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