IGI Logo

Yet another strong quarter; rerating to continue

JK Cement’s (JKCE) Q3FY21 standalone EBITDA at Rs4.5bn (up 62% YoY), was significantly better than our/consensus estimates led by better realisation and lower costs. Grey cement volumes grew 25% YoY while blended EBITDA/te rose 30% YoY to Rs1,417/te (I-Sec: Rs1,247/te). JKCE announced greenfield expansion of 4mnte at Panna, Madhya Pradesh, with split grinding unit in Uttar Pradesh, at a capex of Rs30bn (US$103/te). Given strong OCF of >Rs10bn p.a., net debt is unlikely to increase from the current Rs20bn even after factoring above expansion. Factoring-in the higher volumes and better profitability, we raise our FY21E-FY23E EBITDA by 5-10%, increase our target EV/E to 12x (from 11x), and raise our target price to Rs2,890/share (earlier: Rs2,370), based on 12x FY23E EV/E on half-yearly rollover. Maintain BUY. Key risks: lower demand / pricing.

* Standalone revenues increased 25% YoY to Rs17.3bn, in line with estimates. Grey cement volume (including clinker) increase of 25% YoY to 2.76mnte was ahead of industry average owing to better growth in North markets and was also aided by capacity expansion. Grey cement realisation decline was restricted to only 0.6% QoQ (up 3% YoY) at Rs4,487/te. Volume growth momentum is likely to sustain as demand remains strong even in Q4FY21. White cement and wall care putty volumes increased 17% YoY to 0.41mnte. Other operating income increased by a sharp 81% YoY to Rs302mn led by higher volumes.

* Standalone EBITDA increased 62% YoY to Rs4.5bn (I-Sec: Rs3.9bn). Blended cost/te declined 6% YoY (rose 2% QoQ) vs our estimate of 4% YoY decline owing to lower than expected fuel costs and better operating leverage. Raw material plus power & fuel cost/te declined 6% YoY on low-cost fuel inventory and efficiency improvements from new plants. Freight cost/te increased 4% YoY and 5% QoQ owing to increase in diesel costs and higher lead distance, while other expenses/te (including employee costs) declined 14% YoY owing to better operating leverage. Assuming ~30% EBITDA margins for white cement/putty, implied grey cement EBITDA/te works out to ~Rs1,100/te. PAT grew 73% YoY to Rs2.4bn (I-Sec:Rs2bn).

* Market share gains to continue: JKCE commissioned 0.7mnte grinding unit at Balasinor in Oct’20, taking its total capacity to 14.7mnte. Modernisation of 0.3mnte plant at Nimbahera is likely to complete by Q2FY22 (JKCE has spent Rs3bn on it till Dec’20). JKCE announced greenfield expansion of 4mnte integrated plant at Panna, Madhya Pradesh, with split grinding unit in Uttar Pradesh at a capex of Rs30bn (US$103/te), which includes ~Rs5bn for land acquisitions. Given strong OCF of >Rs10bn p.a., net debt is unlikely to increase from the current level of Rs20bn even after factoring above capex and ‘net debt to EBITDA’ is likely to reduce from the current 1.3x to 1x by FY23E.

To Read Complete Report & Disclaimer Click Here