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Higher realisation offsets cost increases QoQ

JK Cement’s (JKCE) Q3FY22 EBITDA of Rs3.7bn, down 17% YoY, was in line with our / consensus estimates. Blended realisation surprised rising 6% QoQ (up 5% YoY), while total cost/te increased 6.3% QoQ (up 14% YoY) resulting in blended EBITDA/te increasing 5% QoQ (down 21% YoY) to Rs1,116/te. Around 50% civil construction and 70% fabrication work has been completed at its 4mnte Panna greenfield expansion with the project likely to complete by Mar’23. This would drive strong ~14% volume CAGR over FY21-FY24E for JKCE, resulting in market share gains. Factoring higher costs escalations, we reduce our FY22-24E EBITDA by ~5% and cut our target price to Rs3,935/sh (earlier: Rs4,050/sh) based on 14x FY24E EV/E. Maintain BUY. Key risks: lower demand / pricing.

Standalone revenues were up 10% YoY to Rs19.0bn, broadly in line with our estimates. Grey cement volumes including clinker sales increased 5% YoY (down 2% QoQ) to 2.89mnte, implying >75% utilisation. Realisation increased 8% YoY (up 5% QoQ) to Rs4,844/te owing to better pricing in its key markets of North and West and higher trade sales. Premium product sales stood at 6% of trade sales in Q3FY22. White cement and wall care putty volumes increased 11% QoQ and 5% YoY to 0.43mnte, while realisation fell 3.0% YoY (up 1.4% QoQ) to Rs11,615/te. Other operating income rose 24% YoY to Rs376mn.

Standalone EBITDA declined 17% YoY to Rs3.7bn. Blended cost/te increased 14% YoY and 6.3% QoQ owing to increase in various input prices. Raw material plus power and fuel costs/te increased 15.8% YoY (up 8.4% QoQ) on account of increase in petcoke and imported coal prices, while freight cost/te grew 5% YoY (flat QoQ) due to higher diesel prices. Other expenses/te increased 24% YoY and 12% QoQ owing to higher packing, maintenance and additional selling costs in the new markets of the Central region. Employee costs increased 18% YoY to Rs1.3bn. Recurring PAT declined 30% YoY and 14% QoQ to Rs1.7bn.

Standalone gross debt stood at Rs28.9bn as at end-Dec’21 with cash balance of Rs13bn. Hence, standalone net debt stood at Rs15.9bn, up Rs4.5bn, in 9MFY22. Consolidated revenues were up 11% YoY to Rs20.3bn, while EBITDA declined 19% YoY to Rs3.6bn. Recurring PAT declined 35% YoY to Rs1.4bn.

Capacity expansion projects on track. 4mnte greenfield expansion at Panna (IU) with Hamirpur (GU) and 22MW WHRS is on track and likely to get completed by Mar’23. JKCE has incurred ~Rs9.6bn of capex in 9MFY22 towards expansion and is likely to end the year with ~Rs12.5bn capex. Around 50% civil construction and 70% fabrication work has been done for its Panna plant. Equipment deliveries and erection have also started at site. With respect to its Hamirpur plant, civil activity of foundations and silo construction is progressing. Financial closure of consortium project loan for Rs16.8bn from banks has been done at an interest rate of 7.2% p.a. and the company has availed Rs2.1bn disbursement.

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