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In-line quarter; risk-reward appears balanced

* Q3FY22 standalone EBITDA declined 17% YoY to Rs3.7bn and blended EBITDA/ton fell 21% YoY to Rs1,116 − both in line with our and consensus estimates.

* Nearly 50% of the civil construction work and 70% of the fabrication work at the 4mt green-field Panna plant have been completed, and management is targeting to commission the project by Mar’23. This is likely to drive a grey cement volume CAGR of ~12% over FY22-24E.

* Factoring in the higher input cost inflation, we cut our FY22-24 EBITDA estimates by 3-8%. We also reduce our fair value EV/EBITDA multiple to 12x from 12.5x, based on marginally higher WACC/CoE. We roll forward to Mar’23E (Dec’22 earlier), and cut our TP to Rs3,150 from Rs3,300. Maintain Hold as risk-reward appears balanced.

Standalone revenues rise 10% YoY to Rs19bn.

Grey cement volume (including clinker) rose ~5% YoY to 2.89mt (In line with our est.), while grey cement realization rose 5% QoQ (+8% YoY) to Rs4,844 (Emkay est.: Rs4,690), owing to higher trade sales (+300bps QoQ to 69%). Premium product sales stood at 6% of trade sales in Q3FY22. White cement plus wall care putty volumes also rose 5% YoY/11% QoQ to 0.43mt, with realization increasing ~1% QoQ in Q3FY22. Other operating income increased by 24% YoY/10% QoQ to Rs376mn in Q3FY22.

Standalone EBITDA declined 17% YoY to Rs3.7bn – in line with our estimates.

Blended cost/ton rose 14% YoY/6% QoQ (~3% above our est.) due to higher-thanexpected input costs. Petcoke consumption costs in Q3 stood at Rs13,000/ton, and management mentioned that it is likely to increase by 15% QoQ in Q4. PAT declined 30% YoY to Rs1.7bn. Consolidated EBITDA fell 19% YoY to Rs3.7bn, implying the UAE subsidiary’s EBITDA loss of Rs52mn in Q3FY22 vs. EBITDA of Rs14mn/Rs7mn in Q3FY21/Q2FY22

Project updates:

JKCE’s capex stood at Rs9.6bn in 9MFY22, and it expects to commission the 4mt greenfield Panna project by Mar’23. At the Panna project, around 50% of the civil construction work and 70% of the fabrication work have been done. The Hamirpur grinding unit’s civil activity of foundations and silo construction is progressing. FY22/FY23 capex guidance remains unchanged at Rs12.5bn/Rs14bn.

Concall takeaways:

1) Price: Management mentioned that the price hike taken in Jan’22 was largely rolled back due to low demand caused by weather-related disruptions. In Feb’22, JKCE effected a price hike of Rs10-20/bag in North and Rs15-20/bag in South. However, their absorption is yet to be seen; 2) Volumes: Management is targeting YoY flat volumes for grey cement in Q4FY22 3) Net debt: Standalone net debt rose Rs760mn QoQ to Rs16bn, while consolidated net debt stood at Rs18.5bn as of Dec’21; 4) Others: lead distance stood at 454km, rail mix dropped 100bps QoQ to 17%, petcoke consumption in fuel mix stood at 50% vs. 60% in Q2, and blended cement mix +100bps QoQ to 63%.

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