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JK Cement (JKCE)’s standalone EBITDA grew 19% YoY/declined 13% QoQ to Rs4.8bn, coming in 5-9% above consensus/our estimates. The beat was largely owing to lower than expected opex cost. Blended EBITDA/t came in at Rs1,014 for Q1FY25. The company’s grey cement capacity is likely to see ~12% CAGR to 30mt by FY26E (from 24mt currently). Besides, the company has ambitions to see itself among the top-5 players in India, in terms of capacity, and targets doubling its current capacity by FY30 (~13% CAGR). Given the increased scale and efficiencies of grey cement operations and a steady white cement/wall putty business, we expect cashflow generation to support its next leg of growth. Accordingly, we raise our target EV/E to 15x (vs 14x earlier). Factoring-in the lower realization, we cut our FY25-26 EBITDA estimates by 4-5% and revise up Jun-25E TP to Rs4,850/sh, after a quarterly roll-over. We retain ADD on JKCE.

Result Summary

On a standalone basis, JKCE reported overall volume growth of 5% YoY to 4.72mt in Q1FY25, broadly in line with estimates. Grey cement volume grew 6% YoY to 4.33mt, with utilization of 79%. Volume for white cement and wall putty declined 3% YoY to 0.39mt. Given the weak pricing scenario in Q1, grey cement realization declined by Rs259/t QoQ to Rs4,670/t. On the cost front, total cost/t declined by Rs116 QoQ to Rs4,581 (Emkay: Rs4,717), with Rs57/t sequential reduction seen in fixed cost. Consolidated net debt (excl. working capital) increased by Rs2.5bn QoQ to Rs28.3bn as of Jun-24. Despite the company’s capex plans, we expect its net debt to broadly remain at similar levels (~Rs35-36bn) over FY25E-27E.

What we liked: Better than industry volume growth, lower opex/t

What we did not like: Higher than expected decline in realization, increase in net debt

Key takeaways from the earnings call

a) The management targets 30mt/50mt capacity by FY26/FY30, respectively – Following the on-going expansion, the management is looking at various capacity-expansion options like i) brownfield expansion in Muddapur, Karnataka; ii) greenfield expansion in Jaisalmer; iii) line 3 expansion at Panna; and iv) expansion in Toshali, Odisha region. b) Cement prices are 1-1.5% lower than the average prices in Q1FY25; the management expects these to improve Oct-24 onward. c) Other expenses were lower in Q1 on sequential basis owing to lower branding-spends. The mgmt expects an impact of Rs50- 70/t in coming quarters, owing to increase in maintenance and branding spends. d) JKCE maintained grey cement volume growth of 10% YoY in FY25 which implies run rate of around 11% for remaining quarters of FY25. e) The company has preserved its cost savings potential of Rs150-200/t for the next 2-3 years, and expects around Rs70-80/t to kick-in in FY25. f) Paints business revenue stands at Rs570mn, with EBITDA loss of Rs100mn in Q1FY25; JKCE targets revenue of Rs3bn with EBITDA loss of Rs400mn in FY25. g) Incentives stood broadly flat QoQ at Rs690mn in Q1. g) Blended cement mix was up by 100bps QoQ, to 67%; trade sales were up by 200bps QoQ, to 63% in Q1FY25.

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