JK Cement, Pharmaceuticals

JK Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs330
Current market price: Rs218

Capacity expansion to drive growth

Key Points

• The capital expenditure (capex) plans of JK Cement are on track. The company completed its expansion at Nimbahera plant by raising the capacity from 3.5MTPA to 4MTPA. It is in the process of setting up a 3.5MTPA plant in Karnataka by December 2008 along with a 50MW captive power plant (CPP).
• It has acquired Nihon Nirman with a capacity of 0.4MTPA at an acquisition and refurbishing cost of Rs100 crore, taking JK Cement's total capacity to 4.4MTPA.
• Acquisition of Nihon Nirman will lead to savings of Rs200 per tonne in freight cost, as claimed by the management.
• The company has also lined up a capex plan to set up CPPs. It plans to set up a 43MW CPP which will include a 20MW pet coke fired generation unit, a 13MW waste heat recovery power plant and 10MW turbines.
• The company is investing in capacity addition along with investments in power generation. Going forward, the production cost per tonne will reduce because of initiatives taken by the company to invest in CPPs. At the current market price of Rs218 the stock is trading at a price-to-earnings multiple of 6.2x discounting our FY2008 earnings estimate and at 7.8x times discounting our FY2009 earnings estimate. On increased capacities JK Cement trades at an enterprise value (EV)/tonne of USD80.

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SECTOR UPDATE

Pharmaceuticals

Teva launches generic Protonix
Teva, the world's largest generic company, has launched the generic version of Wyeth/Altana's Protonix tablets in the USA on December 24, 2007 triggering off 180 days of exclusivity period for the product. Protonix is Altana's blockbuster drug for acidity and oesophageal reflux and is marketed in the USA by Wyeth. The product generated sales of close to $2.5 billion in 2006.