Emkay Global Financial Services has maintained `Accumulate` on JK Paper with a price target of Rs 48 as against the current market price (CMP) of Rs 36 in its report dated Jan. 24, 2012. The broking house gave the following rationale:
Q3FY12 results were below est. due to continued pressure on margins led by reduced availability of coal. JK Paper reported revenues of Rs 3.2 billion, +4% yoy in line with est. Sales volumes at 69,000 mt grew by 1% yoy while average sales realizations increased 3% yoy to Rs 47,500/mt.
JK Paper reported EBITDA of Rs 303 million, -54% yoy lower than our est of Rs 387 million. EBITDA margins declined by 1,150 bps yoy/100bps qoq to 9.3% lower than our est of 12.0%. Lower availability of linkage coal resulted in higher purchases from open market thereby denting EBITDA margins. P & F costs increased to 15.7% of sales compared to 11.4% last year.
Driven by sharp drop in EBITDA margins, company`s PBT declined by 85% yoy to Rs 55 million lower than our est of Rs 114 million. However, JK Paper received tax credits of Rs 19 million during the quarter. Resultant PAT declined by 71% yoy/12% qoq to Rs 74 million lower than our est of Rs 85million. Company reported EPS of Rs 0.54 lower than our est of Rs 0.62.
With continuous pressure on raw material prices and reduced coal availability, we expect company`s margins are likely to remain under pressure for the next couple of quarters. Though pulp prices have recently started softening & company has also been able to raise paper prices by average 3-4%, however reduced linkage coal availability has resulted into higher purchases of open market coal which are priced higher by almost 40-50% than linkage coal.
Maintain `Accumulate` with target price of Rs 48:
We maintain `Accumulate` rating on JK Paper with target price of Rs 48 based on 20% discount to FY12 book value of Rs 60. The company`s expansion project remains on schedule and is likely to completed by FY13. At CMP of Rs 36, stock is currently trading at 5.6x FY13 est & 8x FY13 EV/EBITDA.
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