Recommendation: Buy
CMP = Rs 376
Price target: Rs 458
- Jaiprakash Associates Ltd's (JAL's) Q3FY2006 stand-alone net profit at Rs57 crore was below our expectations of a net profit of Rs66 crore. The primary reasons were higher interest costs and lower other income. The net sales for the quarter were up 19.7% to Rs797 crore driven by a sharp 30% growth in the company's cement revenues.
- The operating profit margin (OPM) jumped by 340 basis points to 21% due to a sharp jump in the margins of the construction business. The OPM for the cement business fell marginally by 40 basis points during the quarter due to higher fuel costs. Overall, the operating profit during the quarter jumped by 43% to Rs167 crore.
- As the company commissioned a new 1-million-tonne grinding unit at its Tanda plant and a captive power plant during the quarter, its depreciation charge jumped by19% and interest cost increased by 15.5% during the period. Overall, its net profit during the quarter jumped by 27% to Rs57 crore.
- At the current market price of Rs376, the stock is discounting its FY2007 consolidated earnings by 13.5x and its FY2007 consolidated earnings before interest, depreciation, tax and amortisation (EBIDTA) by 7.1x. I maintain Buy recommendation on the stock with a revised price target of Rs458.
Recommendation: Buy
CMP = Rs 170
Price target: Rs 205
- JK Cement Ltd (JKL) has reported a net profit of Rs7.8 crore for Q3FY2006; the same is above our expectation of Rs5.2 crore.
- The net sales for the quarter at Rs221.7 crore are up by 7.7% quarter on quarter (qoq), driven by a 0.5% growth in cement volumes and a 7.2% growth in cement realisation.
- The operating profit margin (OPM) is up by 130 basis points primarily because of flat employee and other costs. Consequently the operating profit for the quarter has jumped 28% qoq.
- The improvement in the OPM was restricted by a 13.5% increase in the freight cost per tonne, and a 17.8% increase in the power and fuel cost.
- Both these cost increases are a result of the rising fuel prices. For example, during the quarter the diesel prices went up by 5-7% and JKL uses diesel to burn its DG sets.
- With stable interest cost and depreciation charge, the net profit for the quarter has jumped an impressive 59.2% to Rs7.8 crore.
