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Miss estimates; prices to remain soft in the near term

Estimate volume growth of 10% YoY in FY25 vs. 6-7% for the industry

* JK Cement (JKCE) consol. EBITDA grew 60% YoY to INR5.6b (est. INR6.1b) and EBITDA/t increased 44% to INR1,077 (est. INR1,133) in 4QFY24. EBITDA miss was led by higher-than-estimated opex/t (+3% vs. est.) and lower sales volume (-2%/10% miss on grey/white cement volume vs. est.). OPM surged 5.5pp YoY to 18% (est. ~19%). Adj. PAT (adjusted for reversal of provision of INR95m) stood at INR2.1b (est. INR2.4b).

* The management highlighted a potential cost reduction of INR150-200/t over the next two-three years. This was primarily be driven by savings in logistics, power and fuel, and other fixed costs. Further, the capacity expansion plan at Panna (clinker line – II having capacity of 3.3mtpa) and grinding capacity of 1.1mtpa is on track, which is likely to be commissioned in 2QFY26.

* We largely retain our FY25/FY26 EBITDA estimates. We prefer JKCE for its steady expansion and strong execution strategy vs. peers. We value JKCE at 15x FY26E EV/EBITDA to arrive at our TP of INR5,300. Reiterate BUY.

Grey cement volume up 13% YoY; Opex/t down 6% YoY

* JKCE’s consolidated revenue/EBITDA/adj. PAT stood at INR31.1b/INR5.6b/ INR2.1b (up 12%/60%/90% YoY and down 2%/8%/12% vs. our estimate). Combined sales volumes stood at 5.2mt (up 11% YoY). Blended realization stood at INR5,974/t (flat YoY; 1% above our estimates, led by higher realization of white cement) in 4QFY24. Other operating income/t stood at INR182 vs. INR111/INR195 in 4QFY23/3QFY24.

* Opex/t declined 6% YoY (3% above our estimate), mainly led by a 17% decline in variable cost (flat QoQ). Freight cost/other expenses/employee cost per tonne was up 4%/3%/17% YoY. OPM was up 5.5pp YoY to 18% and EBITDA/t was up 44% YoY (but down 19% QoQ) to INR1,077.

* In FY24, revenue grew 19% YoY, driven by 17% volume growth and 1% increase in realization. EBITDA grew 57% YoY to INR20.6b and OPM was up 5.3pp YoY to 17.8%. EBITDA/t grew 33% YoY to INR1,080. Adj. PAT grew 88% YoY to INR8b. The company announced a dividend of INR20/share (includes special dividend of INR5/share).

* In FY24, CFO increased 31% YoY to INR19.6b. Capex stood at INR11.7b vs. INR16.1b in FY23. Consolidated net debt stood at INR25.8b vs. INR29.1b in Mar’23. Net debt to EBITDA stood at 1.3x vs. 2.2x in FY23.

Highlights from the management commentary

* Industry volume growth is estimated moderate to ~6-7% YoY in FY25 while JKCE’s volume is expected to grow ~10% YoY. Cement price is under pressure and price hike is expected only in 3QFY25.

* Fuel consumption cost was INR1.79/kcal vs. INR2.41/INR1.82 in 4QFY24/ 3QFY24. Lead distance was down 19km YoY and 8km QoQ to 419km.

* Capex is pegged at INR19b/INR18b in FY25E/FY26E. Additionally, it will spend INR400m on the modernization and working capital requirements of the Toshali plant.

View and valuation

* JKCE has shown strong volume growth (grey cement volume up ~19% YoY in FY24), aided by capacity expansion and strong execution. In our previous report, we highlighted about the company’s superior execution capabilities. We estimate the company’s grey cement volumes to report ~11% CAGR over FY24- 26, better than the industry average growth.

* JKCE trades at 13x/11x FY25E/FY26E EV/EBITDA. Considering JKCE’s growth plans (one of the best among mid-sized companies) and cost-saving strategies, we value the company at 15x FY26E EV/EBITDA to arrive at our TP of INR5,300. Reiterate BUY.

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