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Cost Efficiency and Growth Tailwinds: Investing in JK Lakshmi's Solid Future


jk lakashmi cement ltd

JK Lakshmi Cement: Building a Solid Investment Case (Rating: 7.8/10)

Sector: Cement

Current Market Price (CMP): Rs. 880 (as of 3rd January 2024)

Market Capitalization: Rs. 10349 Crore

Investment Thesis:

  • Strong fundamentals: Low debt, consistent profitability, and dividend record indicate financial stability.

  • Beneficiary of tailwinds: Growing Indian infrastructure spending, housing demand, and government initiatives like Smart Cities Mission drive cement demand.

  • Cost leadership: Focus on efficient operations and proximity to limestone reserves keeps production costs competitive.

  • Wide product portfolio: Caters to diverse construction needs with various cement grades and specialty products.

  • Experienced management: Proven track record of the JK Organisation adds value.

Detailed Analysis:

  • Products & Revenue:

  • Ordinary Portland Cement (OPC): 65% of revenue

  • Blended Cement (PPC & PSC): 25% of revenue

  • Other products: 10% of revenue

  • Financial Ratios:

  • Debt-to-equity ratio: 0.38 (healthy and low)

  • P/E Ratio: 29.77 (fairly valued)

  • Price-to-Book Ratio: 3.80 (undervalued compared to peers)

  • Beta: 1.75 (higher than Nifty average, indicating higher volatility)

  • Sortino Ratio: 2.38 (indicates good risk-adjusted returns)

  • Historical & Future Performance:

  • JK Lakshmi's past 5-year CAGR is 4.41%, underperforming the index CAGR of 12%.

  • Nifty 5-year CAGR is 10%.

  • Future CAGR prediction could be 10-12% over the next 5 years assuming smooth industry growth and company execution.

  • Technical Analysis:

  • Daily chart shows a sideways consolidation pattern with potential for an upward breakout in the near term.

Conclusion:

JK Lakshmi Cement presents a compelling investment opportunity within the Indian cement sector. Its strong fundamentals, cost leadership, diverse product portfolio, and tailwind exposure offer promising potential for long-term capital appreciation. While not without risk due to market volatility, it stands as a viable option for investors seeking undervalued plays with moderate risk tolerance.

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