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Sharp uptick in grey cement profitability

JK Cements (JKCE) reported good set of numbers for 3QFY24 with 20%/17% beat on EBITDA compared to our/consensus estimates. The beat was driven by better than expected realizations and profitability for the grey cement operations. JKCE has delivered industry beating EBITDA/mt of ~Rs1250/mt for its grey cement operations which was a big surprise. The company maintained its strong volume growth momentum by delivering grey/white cement growth of 14%/13%. Company commissioned 1.5mn mt Ujjain (MP) grinding unit this quarter while its 2mn mt grinding capacity at Prayagraj (UP) is expected to be commissioned by 2QFY25. JKCE has also announced new set of capex of 6mn mt at a cost of Rs28.5bn (US$57/mt) which would be funded by a mix of debt (Rs18.5bn) and internal accruals. We believe this expansion would ensure consistent volume growth and fuel its future growth, as a result, we have revised our EBITDA estimate for FY25/FY26 higher by 16% /15%. We continue to assign Add rating for the stock and value it based on 13x Sep25 EV/EBITDA to arrive at our revised TP of Rs4,210 (Rs 3,547 earlier).

3QFY24 result highlights

Revenue at Rs29.3bn is 4.9% ahead of our estimate and up 20.5% YoY. Volumes at 4.7mn mt increased by 13.5% YoY in-line with our expectation. Blended realizations were higher than our expectations and up 6.2% YoY. Grey cement volume increased by 14% while white cement volumes were higher by 13% YoY (Including JK Cement UAE operations). Grey/white cement realizations were up 6%/5% YoY. Operating cost at Rs4,909 declined by 7% YoY and 2.6% QoQ. Power & fuel costs were lower on QoQ as well as YoY basis. Freight costs increased by 4.6% YoY. EBITDA at Rs6.2bn is 20%/17% ahead of our/consensus estimate. EBITDA/mt came in at Rs1,329 against our expectation of Rs1,120

Competitive pressure persists in White cement; Paints to turn EBITDA positive in FY26

Management highlighted that intense competition persists in putty, exerting an impact on white cement business. The profitability for 9MFY24 has been flat YoY. Company expects margins of 15%-18% this year. The paints business recorded revenue of Rs260mn this quarter crossing Rs1bn in 9MFY24. Elevated branding cost is impacting the profitability of paints business, however, company expects the business to clock in revenue of Rs2.5bn/Rs4bn by FY25/FY26 and turn EBITDA positive by FY26.

Capex update

The Ujjain GU (1.5mn mt) has been commissioned in 3QFY24. Construction of Prayagraj GU (2mn mt) is in full swing and is expected to be commissioned by 2QFY25. JKCE has also announced new set of capex of 6mn mt at a cost of Rs28.5bn (USD57/mt) which would be funded by a mix of debt (Rs18.5bn) and internal accruals. Capex plan includes setting up 3mn mt clinker line 2 at Panna, 3mn mt greenfield GU at Bihar, and 1mn mt GU each at Panna, Hamirpur and Prayagraj. Total Capex for FY25/FY26 is pegged at Rs22bn/Rs18bn.

Maintain Add; Revised TP of Rs4,210 (Rs 3,547 earlier)

We believe, the new capex will help JKCE to maintain its consistent volume growth in its existing market and foray in Bihar market would enhance its revenue diversification and provide an impetus for future growth. As a result, we have revised our EBITDA estimate for FY25/FY26 higher by 16% /15%. We continue to assign Add rating for the stock and value it based on 13x Sep25 EV/EBITDA to arrive at our revised TP of Rs4,210 (Rs 3,547 earlier).