Motilal Oswal, one of the leading stock broking firms, has given a buy rating on stocks of JK Lakshmi Cement and Trent Ltd. The stock broking firm feels that both companies have strong growth potential and their stocks would rally further by nearly 19%. JK Lakshmi Cement is a mid-cap company and Trent is a large-cap company.
1. Buy a share of JK Lakshmi Cement with a Target price of Rs 870
As per Motilal Oswal’s research note, JK Lakshmi Cement is a cost-efficient player, focused on increasing profitability. It is among the least cost producers in the industry, backed by lower energy consumption, higher green power share (WHRS and Solar), and efficient management of the logistics. Given the early cost-cutting attempts, the company’s cost curve places it higher than its peers.
Over FY23-25, the brokerage estimates a 24% EBITDA CAGR (consolidated), driven by 9%
volume growth and 15% growth in EBITDA/t. And the cumulative estimate of OCF/FCF (consolidated) to Rs 21b/Rs 9b over FY24-25 (FCF generation primarily led by higher FCF generation at standalone).
Further, the broking firm projects, that the net debt would decline to Rs 5b by FY25 from Rs 10b as of Mar’23 (net debt is estimated to peak out in FY24).
Valuation & Rating
“We believe JK Lakshmi Cement is trading at an attractive valuation of 6.5x FY25E EV/EBITDA and USD63/t (at a significant discount to the replacement cost). While we maintain our standalone estimates, we incorporate consolidated numbers in this note, given the expansion planned in its subsidiary. We value JKLC at 8.5x FY25E EV/EBITDA to arrive at our target price of Rs 870 and reiterate our BUY rating on the stock,” Motilal Oswal added
Stock Price Movement
The latest stock price of the mid-cap company is down marginally by 0.08% to Rs 730.70 per share. Its 52-week-high is at Rs 897 and its 52-week low is at Rs 382.10 per share.
2. Buy a share of Trent with a Target price of Rs 1,835
As per Motilal Oswal’s research note, Trent has planned aggressive expansion, with a focus on productivity. Trent reported an all-around improvement in FY23, coming out of the pandemic impact.
Standalone/consolidated revenue nearly doubled YoY to Rs 77.2b/Rs 82.4b in FY23, aided by a healthy recovery in-store productivity and strong 30% store expansion in both Westside and Zudio.
The discretionary category continues to see muted demand, but Trent has far outpaced the industry. Further, despite aggressive store addition, it has restricted balance sheet risk or weakness in operations. There are near-term growth headwinds given the high pent-up base and demand weakness (as per channel checks), but Trent continues to outperform its peers and offers a huge runway for growth over the next three-to-five years.
Valuation & Rating
Motilal Oswal explains its valuation basis, “We factor in standalone revenue/EBITDA CAGRs of 31%/37% over FY23-25, led by a strong 21% footprint addition and healthy SSSG. Star’s improving store metrics offer a further opportunity.”
“We assign 30x EV/EBITDA to the standalone business (Westside and Zudio;), 1x EV/sales to Star Bazaar, and 15x EV/EBITDA to Zara to arrive at our target price of Rs 1,835. We reiterate our BUY rating on the stock. At 29.9x EV/EBITDA and P/E of 54.5x on FY25E consolidated basis, the valuation is rich, but the high multiple is justified by strong growth.”, the broking firm further added.
Stock Price Movement
The latest stock price of the large-cap company is up marginally by 0.09% to 1,605 per share. Its 52-week-high is at Rs 1,618.95 and its 52-week low is at Rs 1,009 per share.
The stock has been picked up from the brokerage report of Motilal Oswal Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.