Down over 45% from recent high, should you buy the dip in this midcap stock?

With a market capitalisation of more than Rs 16,000 crore, the shares are trading above the short-term moving averages of 5, 10, 20, 50, 100, 200-DMA.

The brokerage house highlighted that the company enjoys a better grey cement market mix with no exposure to East and less than 10 per cent exposure to South markets where prices remain volatile due to oversupply concerns. Unlike mid-cap peers, it derives nearly 25 per cent EBITDA from the white cement/putty portfolio which provides steady-state cash flow to fund its grey cement expansions.

“JK Cement may trade at a premium to its long-term historical average once recent concerns around sharp fuel cost escalation recede, in our view, owing to market share gains and better than industry average profitability. Even after more than 40 per cent stock price correction in the past one year, the stock has delivered 15 per cent 5-year CAGR return and 30 per cent 10-year CAGR return,” it added.

Emkay Global has a ‘Hold’ call on JK Cement with a target price of Rs 2700. It said that the margin pressure is likely to persist in H1FY23E as variable cost/ton is likely to remain elevated due to an increase in input costs in the past few months and inability to pass on the cost increase.

Nirmal Bang, however, has turned ‘neutral’ on the cement sector as it believes that there are multiple headwinds, which will inhibit earnings growth and in turn lead to contraction in multiples.

Aggressive capacity expansion plans by multiple players, a prolonged cost inflation environment, which is showing no signs of abating, lack of pricing power given the elevated competition and deteriorating demand drivers are key headwinds for the sector, which will affect earnings in the medium term, it said.

“We were earlier building in a marginally subdued FY23 and pick-up in FY24 on the back of normalisation of demand and costs. However, we believe that the industry will not be able to deliver EBITDA/mt of FY22 at least for the next two years. Incessant increase in supply, weak demand and fight for market share are likely to affect margins. As a result, we have cut our FY23 and FY24 EBITDA estimates across the board and now expect FY24 EBITDA/mt to be weaker than what the industry has reported for FY22,” the brokerage firm added.

Recently, Jefferies indicated that all-India average cement prices fell 3 per cent in May compared to the previous month as prices in several markets declined due to weak demand.

“Downward risk on earnings estimates has resurfaced as price hikes are not sustaining and costs remain elevated,” said Jefferies. The brokerage said cement price rises in the northern, eastern and central regions of India in April were robust but a partial rollback of the increase in May is concerning,” it said.

The company had reported 6.93 per cent fall in consolidated net profit at Rs 199.44 crore for the fourth quarter ended March 2022. It had posted a net profit of Rs 214.31 crore for the year-ago period. Revenue from operations stood at Rs 2,351.16 crore during the quarter as against Rs 2,134.14 crore in the corresponding period of the previous fiscal year.

romoters held 45.82 per cent stake in the company as of 31-Mar-2022, while FIIs owned 16.5 per cent, DIIs 20.63 per cent.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)