IGI Logo

Earnings beat led by higher other operating income

Other operating income up 86% YoY on higher subsidies

* JKCE reported consolidated EBITDA of INR4.1b vs. estimated INR3.7b in 1QFY24, primarily led by higher other operating income. EBITDA/t stood at INR881 (est. INR802) and adj. PAT was at INR1.24b (est. INR1.17b). 

* Central India plant’s utilization increased to ~75% in 1QFY24 and has started generating EBITDA/t closer to the company’s average level of grey cement business. Profitability of this plant will further improve with the stabilization of WHRS by 3QFY24 and an increase in AFR usage. 

* We largely maintain our FY24/FY25 EBITDA estimates. We prefer JKCE for its steady expansion and better execution compared to peers. We maintain BUY with a TP of INR3,600, valued at 14x FY25E EV/EBITDA.

Volumes up 25% YoY, OPM down 3pp YoY

* JKCE’s consolidated revenue/EBITDA/adj. PAT stood at INR28b/INR4.1b/ INR1.24b (up 22%/1%/down 24% YoY and up 1%/9%/6% vs. our estimate). Sales volumes stood at 4.63mt (up 25% YoY). Blended realization was at INR5,968/t (declined 3% YoY; 2% above estimates) in 1QFY24. Other operating income jumped 86% YoY/60% QoQ to INR831m. 

* Opex/t was up 1% YoY (in line), led by a 5%/1% rise in variable/freight costs. Employee cost/t was down 6% YoY and other expenses/t declined 8% YoY, benefitting from higher volumes. OPM contracted 3pp YoY to 15% (est. 14%) and EBITDA/t declined 19% YoY to INR881.

* Consolidated net debt stood at INR30.3b vs. INR29.1b in Mar’23. Net debt to EBITDA stood at 2.3x vs. 2.21x in FY23.

Highlights from the management commentary

* Grey cement volume growth should increase 15-20% YoY in FY24. Volumes in Jul’23 were lower due to the monsoon season and maintenance shutdowns. There has been an effective price hike of INR7-10/bag in North region in Jul’23, while prices were unchanged in South and Central India. 

* Fuel cost/t of cement should decline by INR250-300/t in FY24. In 1QFY24, savings in fuel costs stood at ~INR150/t as JKCE procured domestic coal at cheaper rates. There should be further savings of INR65-70/t each for the next two quarters. However, fuel prices remain volatile and are a key thing to watch out for to assess movement in energy costs.

* Capex guidance maintained at INR13-14b/INR7-8b for FY24/FY25. Capex stood at INR3b in 1QFY24 (including spill over capex of Panna expansion).

View and valuation

* Ramp-up of JKCE’s Central India plant is quite encouraging as it achieved capacity utilization of ~75% with improvement in profitability. Moderation in fuel costs and operational efficiency will help to improve profits. 

* JKCE trades at 14.4x/12.4x FY24E/FY25E EV/EBITDA. We maintain BUY with a TP of INR3,600, based on 14x FY25E EV/EBITDA, considering its growth plans (one of the best among mid-sized companies) and cost saving strategies.

Highlights from the management commentary Demand and pricing trends

* Grey cement volume growth should be around 15-20% YoY in FY24. Volumes in Jul’23 were lower due to the monsoon season and maintenance shutdowns.

* There has been some improvement in cement prices in the North region (increased by INR7-10/bag) in Jul’23; however, prices in the Central and South regions remained unchanged. Realization should increase by INR50-70/t QoQ in 2QFY24.

Debt and other highlights

* Consolidated gross debt (long-term) was at INR45b vs. INR45.3b as of Mar’23. Net debt stood at INR30.3b vs. INR29.1b as of Mar’23. The net debt-to-EBITDA ratio stood at 2.30x vs. 2.21x in Mar’23. Short-term borrowings stood at INR4b. Net debt has peaked out at current level.

* Putty market size in India is 1mtpa. Installed capacities of White Cement are 1.4- 1.5mtpa and some imports also take place mainly from UAE (RAK White and JK Cement, Fujairah). Putty market has become very competitive as Paints players believe it to be a very lucrative business. 

* Market share of the company is 22-23% in Putty, while UTCEM and JKCE hold 50% market share each. The White Cement segment’s 12-15% of EBITDA came from value added products.

* The company has started expanding in markets for the Paints business and started sending materials to dealers. Revenue should be around INR1.5-2b in FY24 and INR3b in FY25. Operating loss from this business is estimated to be INR200m in FY24. In 1QFY24, revenue was INR250m and operating loss was INR20m.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412