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Market share gains to drive earnings

Expansion in Central India to be positive

* JK Cement (JKCE) continued to gain market share in 3QFY21, with volumes growing 24% YoY, led by ~40% capacity expansion. EBITDA grew 62% YoY to INR4.5b, the highest ever.

* JKCE has approved setting up a greenfield 4mtpa cement capacity in Central India, improving volume growth visibility beyond FY23. Moreover, this should strengthen the regional mix further by reducing the share of South.

* We keep our earnings estimate broadly unchanged and reiterate our Buy rating on a 24% EPS CAGR over FY21–23E, driven by a 12% CAGR in volumes.

EBITDA up 62% YoY on strong volumes and margins

* 3QFY21 revenue/EBITDA/PAT was up 25%/62%/73% YoY to INR17.6b/INR4.5b/INR2.4b, beating our estimates by 1%/6%/3%.

* Volumes rose 24% YoY to 3.17mt (est. 3.15mt) – Grey Cement was up 25% YoY to 2.76mt and White Cement was up 17% YoY to 0.41mt. EBITDA per ton was up 30% YoY to INR1,417/t (-3% QoQ) on account of lower cost.

* Blended realization was in-line at INR5,556/t (+1% QoQ; v/s est. INR5,537/t) as pricing remained steady and strong.

* Total cost per ton fell 6% YoY to INR4,139/t (v/s est. INR4,188/t), but was up 2% QoQ on a 6%/5% QoQ increase in power and fuel/freight costs.

* The Nimbahera Line 3 upgrade and Mangrol OLBC work should be completed in 2QFY22, which should lower operating cost.

* Net debt stands at INR14.0b (v/s INR15.9b in Mar’20). Net debt/EBITDA stands at 0.98x v/s 1.35x in FY20.

* 9MFY21 revenue/EBITDA/PAT was up 7%/29%/35% YoY to INR42.8b/INR10.7b/INR5.4b. This was led by 9% YoY growth in volumes to 7.74mt and a 4.18pp YoY increase in margins at 25.1%.

Highlights from management commentary

* The 4mtpa integrated greenfield plant at Panna would entail capex of INR29.7b, with estimated spend of INR8.0b/INR13.0b/INR6.0b in FY22/FY23/FY24; it should be commissioned in 1QFY24. This would enhance its footprint across Central, where it is currently very limited.

* In 4QFY21, price has softened across geographies on account of severe winters, but is still up 2–3% YoY. Housing demand continued to be robust, while infra projects started picking up in 3QFY21.

* It has increased the proportion of imported coal in the kiln fuel mix to mitigate the impact of rising petcoke prices, but has guided for an increase of INR80/t QoQ in power and fuel cost.

* The Nimbahera Line 3 upgrade would result in INR50/t cost savings at the site, which would be reflected from 2HFY22.

* Mangrol expansion – While the budged capex was INR20b, actual spend would be lower at INR18.5b, of which INR16.5b is already complete.

* Gross debt / Net debt stands at INR27.9b/INR14.0b. It will raise debt of INR18.0–20.0b for Panna, but peak net debt should be below INR25b.

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