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Enhancing its foothold in Central India

We interacted with JKCE’s management to gauge their growth plans, industry demand and pricing trends, scope for cost reduction, and the dynamics of the White Cement and Putty business. The key takeaways are:

Completes expansion of 4mtpa; further expansion plans underway

* JKCE recently commenced commercial operations at its greenfield integrated plant at Panna, Madhya Pradesh (Clinker/Grinding capacity of 2.64mtpa/ 2mtpa) and a greenfield grinding unit at Hamirpur, Uttar Pradesh (Grinding capacity of 2mtpa) ahead of its original schedule. Production capacity in Gray Cement now stands at 18.7mtpa.

* It is increasing its Gray Cement capacity by 5.5mtpa at an estimated capex of INR11.6b. This will include brownfield expansion of 2mtpa through debottlenecking at four units and will be completed by Mar’23. JKCE will set up two split greenfield grinding units at Ujjain, Madhya Pradesh and Prayagraj, Uttar Pradesh with an expected commissioning by 2QFY25.

* Clinker capacity at the Panna plant will increase by 2,000tpd to 10,000tpd (from 2.64mtpa to 3.3mtpa) by Sep’23. This, along with the surplus Clinker in North India, will help meet the Clinker requirements of the above mentioned plants. The management is targeting 9-10% market share in Central India.

* Peak production capacity after all expansions will be 22mtpa (90% capacity utilization), based on 68% Clinker factor. A Clinker factor of 63% may result in full capacity utilization. In FY22, it achieved a Clinker factor of 66%.

Scope exists for further cost reductions in logistics and energy

* JKCE has multiple scope for cost reductions, a few of them are: 1) Increase in Clinker factor through higher trade sales, which currently stands ~68%. The target is to increase it to ~70%. Increase in blending by 1% leads to cost saving of INR25-30/t. 2) Increase in AFR and renewable power share – 18MW WHRS at its Muddapur (South) plant. 3) Cost reduction of INR20-30/t in logistics cost.

* Share of alternate fuel in total energy consumption is in double-digits (in calorific value terms) and the management aims to further improve its usage. WHRS of 22MW at the Panna plant will be commissioned by Mar’23

Expect profitability to remain at 2Q levels in 3QFY23

* No major savings in energy cost are expected for JKCE in 3QFY23 as it consumed its low-cost inventory and its cost increase was lower v/s that of the industry. The latter may see cost benefits of INR100-150/t (in line with our estimate).

* There has not been much improvement in Cement prices in the company’s key markets. North India has seen a price increase of INR5-7/bag in Nov’22. Prices in South and West India rose INR10/bag each in Oct’22. No price increase in South and West India occurred in Nov’22.

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