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Weak quarter; upcoming capacities to secure growth momentum

JK Cement (JKCE)’s standalone EBITDA grew 51% YoY (declined 10% QoQ) to Rs5.5bn, coming in 7-9% below consensus/our estimates. The miss was largely owing to higher than expected opex cost. Blended EBITDA/t came in at Rs1,075 (grew 35% YoY/declined 19% QoQ) for Q4FY24. Company’s grey cement volumes in FY24 were 900-950bps higher than industry growth (growing at 19% to 16.9mt), driven by healthy ramp-up in the recently commissioned Panna plant (CU of 83% in first year of operations). Besides, orders for the 3.3mt clinker line-2 at Panna and the 1mt GU plants as well as the machinery released and construction work have all started. This would be followed by another 5mt of GU in Bihar and the central markets (to reach capacity of 30mt by FY26-27). We broadly maintain FY26E EBITDA and reiterate our ADD rating on the stock, with unchanged TP of Rs4,400/share (14x Mar 26 EV/E).

Result Summary

On a standalone basis, JKCE reported overall volume growth of 12% YoY to 5.1mt in Q4FY24 (in line with estimates). Grey cement volume grew 13% YoY to 4.7mt, with utilization of 85%. Volume for white cement and wall putty declined 2% YoY to 0.42mt. Given the weak pricing scenario in Q4, grey cement realization declined by Rs235/t QoQ to Rs4,928/t. On the cost front, total cost/t declined by Rs59/t QoQ to Rs4,697 (Emkay: Rs4,622), with Rs39/t sequential reduction seen in ‘RM plus P&F’ expense. Consolidated net debt (excl. w/cap) declined by Rs4bn QoQ to Rs26bn as of Mar-24. Company has generated consolidated FCF of Rs4.6bn after the working-capital release of Rs630mn and capex of Rs11.8bn in FY24. JKCE has consistently maintained a healthy capacity-addition trajectory, with grey cement capacity CAGR of 17% during FY19-24, at 22.2mt. It has established a clear roadmap to reach 30mt in the medium term. We expect Company to generate Rs36bn OCF during FY25-26E, with subsequent capex of Rs37bn. Despite the capex plans, we expect net debt/EBITDA at <2x during FY25E-26E (vs. 1.5x in FY24). What we liked: Better than industry volume growth in Q4 and FY24 What we did not like: Lower than expected profitability

Key takeaways from the earnings call

a) Despite near-term weak demand owing to the elections, Company expects 10% volume growth in FY25. There will be healthy growth from central India owing to recent capacity expansion, while the North and South will grow at par with the industry. b) Expects Rs150-200/t sustainable cost savings over a couple of years, driven through logistics (Rs50/t), and green power (already at 50% share). c) The upcoming clinker line-2 in Panna to be commissioned by Sep-25. A fully integrated plant is likely to be operational by Q3FY26. d) The Toshali plant would incur capex of Rs400mn towards modernization. Expects the plant to contribute volumes of 0.3-0.4mtpa. e) Management expects prices to move upward, largely from Q3FY25. f) For the paints segment, revenue in FY24 stood at Rs1.53bn, with EBITDA loss of Rs200mn. For FY25, Company targets revenue of Rs3bn. However, EBITDA losses would widen to Rs350-400mn owing to higher brand investments. Expects the paints business to turn EBITDA-positive FY27 onwards. g) Incentives for Q4FY24 stood at Rs700mn.

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