IGI Logo

Capacity expansion to drive market-share gains

* JK Cement (JKCE) commenced commercial operations at its 4mt grey-cement grinding capacity in the central region in Nov-22, thus accelerating its total grinding capacity to ~19mt. This should drive a strong ~13% volume CAGR (>1.5x of industrygrowth forecast) over FY22-25E. Further, the company targets increasing its grinding capacity to 25mt by FY25E (already announced a detailed plan), which should help it to gain market share over the medium term.

* JKCE’s white-cement and wall-putty operations (~25-30% of consolidated EBITDA, per our estimate) are a high-margin and steady-growth business that cushions earnings volatility in its grey-cement business. Cash flow from this segment will continue to be utilized for expanding the grey-cement business.

* JKCE’s cash-flow generation will support its next leg of growth. Given its increased scale of operations, we expect JKCE’s OCF to more than double in FY22-25E vs the avg. OCF over FY15-19. Company’s RoIC saw a reset to 13% in FY22 (from <10%) which we expect to improve to 20% in the next 4-5 years.

* We maintain our FY23-25 estimates; however, we increase our Dec-23E TP to Rs2,800/share (Rs2,725 earlier) on a quarterly roll-over. Our DCF-based TP implies 1-yr forward EV/EBITDA of 11x. We remain structurally positive on the company. However, we maintain HOLD on the stock, as the risk-reward appears balanced post the 15% run up in the stock price in the past one month.

* Increasing scale in the grey-cement business to drive market-share gains: JKCE has consistently increased its grey cement capacity, from 4mt in FY06 to ~19mt currently. The company has recently commissioned its 4mt cement grinding capacity in the central region in Nov-22 while its 2.5mt clinker plant at Panna is likely to commission soon. This should drive a strong ~13% volume CAGR (>1.5x industry growth forecast) over FY22-25E. Further, JKCE targets increasing its grinding capacity to 25mt, with 2mt through debottlenecking, 1.5mt GU at Ujjain, 2mt at Prayagraj by Mar-23/Mar-24 and H1FY25, respectively, at capex of Rs11.6bn (US$26/ton). This will help it to gain market share over the medium term.

* White-cement/Wall-putty business cushions volatility in earnings: JKCE is the 2 nd largest domestic player (~40% market share) in the white-cement and wall-putty market, which entails high margins (23-25%). The business contributes ~25-30% of consolidated EBITDA, in our estimate. We view this segment as a steady cash generator for JKCE, with cash flows to continue being utilized for expanding its grey-cement business.

* Strong OCF to aid the next leg of growth; net debt/EBITDA to peak in FY23E: With its increased scale of operations, we expect JKCE’s OCF to more than double over FY22- 25E vs the average OCF of FY15-19. JKCE’s consolidated net debt stands at Rs29bn as of Sep-22 and, despite the ~Rs40bn capex to be incurred over FY22-25E, net debt/EBITDA is likely to peak at 2x in FY23E.

* EBITDA CAGR of 16% over FY22-25E; RoIC to improve further: We estimate consolidated volume CAGR of 12% and blended realization CAGR of 2.3% over FY22- 25E. JKCE’s RoIC saw a re-set to 13% in FY22 (from <10%), thanks to doubling of EBITDA over FY19-22; we expect it to further improve to 20% over the next 4-5 years.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf &

SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer