Upcoming union budget 2020 could see government reforms this year and the target would be infrastructure/real estate space, claimed most brokerages including Sharekhan, JM Financial, Elara Capital amongst others.

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One sector to directly benefit from this budget reform would be the cement space and one of the promising midcap stocks from this sector is JK Cement.

With a market capitalisation of Rs 10,041 crore, this midcap stock has delivered 80.52 percent returns in the last one year, better than any large-cap. In fact, in the last one year, UltraTech Cement and Shree Cement reported only 16 percent and 45 percent gains respectively.

JK Cement is the second-largest manufacturer of white cement and wall putty in India, with an annual capacity of 0.6 MTPA and 0.9 MTPA respectively.

The stock currently trades higher at a P/E of 35.37x against sector P/E of 18.23x. Also, the company has reduced its debt/equity ratio to 1.10x in March 2019 as compared to 1.49x in March 2018.

In the case of interim results, the company reported a 12 percent year-on-year (YoY) jump in its net sales figure during the second quarter this financial year. The net profit jumped 60 percent YoY to Rs 79.52 crore as compared to Rs 49.65 crore in the corresponding quarter last year.

On the cement sector outlook, Edelweiss in its report said, "Fortunes of the cement industry are set to take a favourable turn led by demand revival, surging cement prices, industry consolidation, and benign raw material prices."

North and central regions are likely to be the highest beneficiaries as they are expected to clock utilisation of 80 percnet plus over FY20-22E. Hence, we initiate a ‘BUY’ for JK Cement with a target price of Rs 1,401, the report added.

Antique Stock Broking believes that ongoing capex towards a 40 percent increase in its grey cement capacity would not only boost volume growth but also drive improvement in profitability due to a higher proportion of volumes from newer efficient units.

The brokerage said, "We expect JK Cement to register revenue/EBITDA/PAT CAGR of 12 percent/21 percent /37 percent over FY19-22E. After a 4-5 percent growth in FY19-FY20E, we build ~12 percent /8 percent volume growth in FY21/22E."

First Published:Jan 23, 2020 2:28 PM IST