Buy J K Cement Ltd For Target Rs. 150 By Motilal Oswal Financial Services
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EBITDA in line; capacity expansion on track
* JK Cement (JKCE)’s consol. EBITDA grew 19% YoY to INR4.9b (est. INR4.7b), and EBITDA/t increased 14% YoY to INR1,003 (est. INR949) in 1QFY25. The impact of lower grey cement realization was offset by - 1) higher other operating income; and 2) lower other expenses. OPM surged 2.6pp YoY to 17.3% (est. 16.3%). Adj. PAT increased 49% YoY to INR1.9b (est. INR1.5b).
* Management highlighted its long-term capacity expansion plan of 45- 50mtpa (vs. 24mtpa currently), including the greenfield expansion at Jaisalmer, followed by brownfield expansions at Muddapur (Karnataka), Panna (MP), and Orrisa plants. JKCE reiterated its cost-saving target of INR150-200/t over the next two years through logistics cost optimization and the increasing share of green energy and alternative fuel.
* We broadly maintain our FY25/FY26E EBITDA. We prefer JKCE due to its steady expansion and stronger execution strategy vs. peers. We value JKCE at 15x Jun’26E EV/EBITDA to arrive at our TP of INR5,150. Reiterate BUY.
Grey cement volume up 6% YoY; opex/t down 6% YoY
* JKCE’s consolidated revenue/EBITDA/adj. PAT stood at INR28.1b/INR4.9b/ INR1.9b (up 2%/19%/49% YoY and down 2%/up 4%/24% vs. our estimate). Combined sales volumes stood at 4.8mt (up 5% YoY). Blended realization stood at INR5,793/t (down 3% YoY/QoQ; in line) in 1QFY25. Grey cement realization declined 6%/5% YoY/QoQ to INR4,670 (3% miss). Other operating income/t stood at INR216 vs. INR178/INR182 in 1Q/4QFY24.
* Opex/t dipped 6% YoY. Variable costs/other expenses per tonne declined 13%/4% YoY, while freight costs/t rose 1% YoY. OPM improved 2.6pp YoY to 17.3% and EBITDA/t was up 14% YoY to INR1,003.
* Depreciation and interest costs increased 9% and 1% YoY, respectively. Other income grew 42% YoY.
Highlights from the management commentary
* Cement demand is weak, and JKCE expects it to revive in Sep-Oct’24. Cement prices are also under pressure and down 1.0-1.5% vs. 1QFY25.
* Fuel consumption cost was INR1.62/kcal vs. INR2.19/INR1.80 in 1QFY24/ 4QFY24. Lead distance was down 11km YoY and 4km QoQ to 415km.
* JKCE commissioned a greenfield grinding unit at Prayagraj, with a capacity of 2mtpa in Jul’24 (within 10 months of commencement of work).
Valuation & View
* We estimate JKCE’s consol. revenue/EBITDA CAGR at 10%/15% over FY24- 27, driven by an 11% CAGR in sales volume and improvement in EBITDA/t.
* The stock trades at 13.6x Mar’26E EV/EBITDA and an EV/t of USD151. Considering JKCE’s growth strategy (long-term capacity target of 45- 50mtpa), higher volume growth, improving regional mix, and improved profitability, we value the stock at 15x Jun’26E EV/EBITDA to arrive at our TP of INR5,150. Reiterate BUY.
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