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Good volumes growth, margin recovery slower

JK Cements (JKCE) reported results largely in line with our estimate at EBITDA level. The company has restated its financials to factor in the effect of amalgamation of its subsidiary Jay kay cem central ltd (recently commissioned Panna and Hamirpur plants) with the parent and as a result, 1QFY24 and 4QFY23 numbers have been restated. On consolidated basis, the company delivered impressive volume growth of 25% for 1QFY24 on account of ramp-up of Panna and Hamirpur. The company has achieved utilization of 75% at its new plants within a short span of 9 months. It has also commissioned 22MW WHRS plant at Panna during the quarter which is likely to improve margins for the company going forward. We have marginally tweaked our estimates and maintain our TP of Rs3,164 for the company. We also maintain our Reduce rating on the stock on account of fair valuations of 12.5x FY25 EV/EBITDA.

1QFY24 result highlights

Standalone revenue increased by 21% YoY to Rs26.2bn on account of amalgamation of its central region subsidiary. The grey cement volume growth was higher at 29% whereas white cement volumes increased by 6% YoY. Grey cement realizations were down by 1% on QoQ basis whereas white cement realizations declined by 3% QoQ. EBITDA at Rs4bn declined by 1% YoY as the operations of new plants have not achieved breakeven at EBITDA level. Combined EBITDA/mt stood at Rs893/mt and if we assume 15% margins for white cement business, then grey EBITDA/mt is below Rs800/mt for 1QFY24. Higher interest and depreciation charges resulted in PAT declining by 22% YoY to Rs1.26bn.

Operating costs to improve further on WHRS and lower petcoke costs

Power & Fuel consumption cost for 1QFY24 stood at Rs2.2/kcal as against Rs2.5/kcal in 4QFY23. The management has indicated that coal cost should reduce to Rs2/kcal in 2QFY24 and Rs1.8/kcal 3QFY23. Even though pet coke costs have started inching up to USD130-135, company expects savings to the tune of Rs2.5-3bn for FY24 as low-cost inventory would flow in with a lag. 22MW WHRS at Panna will is now fully operational and the unit would reach its optimal generation in 3QFY24 which would accrue savings of Rs0.5bn going forward.

Capex update

The Ujjain GU (1.5mn mt) is expected to be commissioned in 4QFY24. Company has received EC and placed orders for the prayagraj GU (2mn mt) which is expected to be commissioned by 3QFY25. Out of the total planned capex of Rs14bn for FY24, company has spent Rs1.5bn in 1QFY24 (excluding panna capex of Rs1.7-2bn). The capex is pegged at Rs8bn for FY25. Company expects to complete Panna debottlenecking by 3QFY24 which would increase its capacity from 8,000tpd to 10,000tpd.

Maintain Reduce as TP offer limited upside from current levels

The stock is currently trading at 12.5x FY25 EV/EBITDA which we believe factors in the growth potential adequately. We are building in 12% revenue and 25% EBITDA CAGR for the company over FY23-25. We have assigned 13x as target multiple for the stock to arrive at our revised TP of Rs3,164. We maintain our Reduce rating on the stock

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