Hold Eicher Motors Ltd For Target Rs. 2,600 - Emkay Global Financial Services Ltd
Lower opex/ton leads to EBITDA beat; expansion on track
* JK Cement’s Q1FY23 standalone EBITDA was flat YoY at Rs4bn, standing 14%/19% above consensus/our estimates owing to lower-than-expected increase in cost/ton. Accordingly, blended EBITDA/ton fell 15% YoY to Rs1,124 (Emkay Est: Rs945)
* Management mentioned that impact of the high-cost fuel inventory is likely to reflect in Q2 and profitability would sharply decline sequentially in Q2FY23.
* Over 50% of the equipment erection work and the entire civil work are complete at the 4mt green-field Panna plant; Mgmt expects to commission the project by Mar’23. This is likely to drive grey-cement volume CAGR of ~11% over FY22-25E.
* Factoring in the lower opex/ton, we raise FY24-25E EBITDA by 4% and TP to Rs2,600 (from Rs2,360) post the quarterly roll-over to Sep’23. Our DCF-based TP implies 1- year fwd EV/EBITDA of 11x. Maintain Hold, as the risk-reward appears to be balanced.
* SA revenues rise 33% YoY to Rs21bn. Grey-cement volume (incl. clinker) rose 15% YoY to 3.2mt (in line with our estimate), while grey-cement realization rose 5% QoQ (+11% YoY) to Rs5,191 (Emkay est.: Rs5,226/ton). Premium product sales stood at 8% (+100bps QoQ; +200bps YoY) of trade sales in Q1FY23. White cement plus wall care putty volume rose 48% YoY at 0.39mt, with realization slightly up QoQ, to Rs12,230/ton.
* Standalone EBITDA remains flat YoY at Rs4bn, coming in 14%/19% above consensus/our estimates. Total cost/ton rose 21% YoY/~3% QoQ to Rs4,960, owing to an increase in input costs. The fuel mix stood at 50% petcoke, with the balance comprising imported coal and AFR usage. Management expects P&F cost/ton to increase by Rs200 QoQ in Q2FY23 owing to full impact of the high-cost inventory. Adjusted PAT declined 13% YoY to Rs1.8bn. Consolidated EBITDA remained flat YoY at Rs4bn, implying that the UAE subsidiary’s EBITDA stood at Rs36mn in Q1FY23 vs. EBITDA of Rs33mn/Rs15mn in Q1FY22/Q4FY22.
* Project update: Capex stood at Rs5.4bn in Q1FY23. JKCE expects to commission the 4mt greenfield Panna project and the 22MW WHRS project by Mar’23. FY23/FY24 capex guidance remains unchanged at Rs17bn/Rs11bn. Total capex for Panna is ~Rs29.7bn and management expects the plant to operate at 50-60% utilization in FY24.
* Consolidated net debt increases by Rs4.7bn QoQ to Rs26.2bn, as of Jun’22. Consequently, consolidated net debt/EBITDA increased from 1.4x in Mar’22 to 1.71x as of Jun’22. Net debt is likely to peak out at Rs33-34bn.
* Concall takeaways: 1) Price: Cement prices decreased by Rs15-18/50-kg bag in the North and Rs20/50-kg bag in the South compared with average prices in Q1FY23. 2) Volume: Management has guided to volume growth of 10% for FY23, implying 8% growth for 9MFY23. 3) Profitability: JKCE expects EBITDA to decline by 30-35% QoQ (Rs400/ton QoQ) in Q2. 4) Paints: Capex of Rs1.5bn/2bn is planned for FY23/FY24. 5) Others: Lead distance increased by 18km QoQ to 475km. The rail mix stood flat QoQ at 17%. Trade mix stood at 69% and PPC share 64%
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