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Market share gains to continue

JK Cement (JKCE) Q1FY22 EBITDA at Rs4bn (up 86% YoY) was ahead of our and consensus estimates led by better grey cement realisation which grew 6% QoQ and lower total costs (up only 1% QoQ). Accordingly, blended EBITDA/te grew 8% QoQ and YoY to Rs1,323/te (I-Sec: Rs1,200). Management is targeting commissioning of  even after funding the Panna expansion. We maintain our FY22E-FY23E EBITDA while raising our target price to Rs3,700/sh (earlier: Rs3,290) based on 14x Jun’23E EV/E (earlier: 13x Mar’23E). Maintain BUY. Key risks: lower demand / pricing.

* Standalone revenues up 69% YoY to Rs16.0bn, broadly in line with estimates. Grey cement volumes including clinker sale increased 73% YoY on a low base and declined 21% QoQ to 2.76mnte implying ~71% utilisation. Realisation surprised with 6% QoQ increase at Rs4,679/te owing to change in sales mix (Q4FY21 had higher clinker and non-trade sales vs the same in Q1FY22). White cement and wall care putty volumes declined 33% QoQ (up 50% YoY on a low base) to 0.26mnte owing to covid resurgence, while realisation fell 1.2% YoY / 3.7% QoQ at Rs11,811/te. Other operating income rose 1.1x YoY to Rs322mn led by higher volumes.

* Standalone EBITDA up 86% YoY to Rs4.0bn (I-Sec: Rs3.6bn). Blended cost/te declined 3.8% YoY owing to better operating leverage and increasing share of grey cement volumes. Raw material plus power and fuel costs/te was broadly flat QoQ, while freight cost/te grew 2.5% QoQ. Petcoke contributed 40% of the fuel mix and the balance was imported coal and alternate fuels. Management expects fuel mix to be broadly same in the near term. Increase in petcoke prices is not reflected in power and fuel cost for Q1FY22 owing to available low-cost inventory. Other expenses/te increased 6% YoY and declined 12% QoQ. Employee costs increased 13% QoQ to Rs1.2bn on account of salary increments and new recruitments for expanding into new markets. PAT grew 1.7x YoY to Rs2.1bn (I-Sec: Rs1.8bn).

* Capex of Rs12.5bn is expected to be incurred in FY22 primarily on account of Panna expansion (Rs9bn) and the remaining towards Nimbahera plant upgradation and other efficiency capex. Company is likely to incur capex of Rs14bn in FY23 and expects Panna commissioning by Mar’23.

* On ESG front, the company aims to improve its clinker ratio, increase blended cement contribution, and reduce power consumption by increasing thermal substitution via use of alternate fuels. It plans to set up a 22MW WHRS at its Panna plant. It is also planning to set up a WHRS at its South India plant (15MW capacity at an estimated cost of Rs1.75bn). Company is identifying opportunities to increase power generated from wind and solar energy. Currently, 25% of power is met by WHRS, which is expected to reach >50% in the coming years.

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