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Announces 6mtpa grey cement capacity expansion by FY26E

JK Cement (JKCE) reported higher-than-estimated consolidated EBITDA of INR6.3b (est. INR5.8b) in 3QFY24, fueled by lower-than-estimated variable costs and higher white cement realization. EBITDA/t stood at INR1,330 (est. INR1,230), and adj. PAT was at INR2.8b (est. INR2.3b) during the quarter.

JKCE announced capacity expansion of 6mtpa spread across the Central and East (Bihar) regions, which are likely to be commissioned by FY26. The management expects further cost savings of INR30-40/t in 4QFY24, and the commissioning of WHRS at its Karnataka plant would lead to energy cost savings in 1QFY25E.

We raise our EBITDA estimates by 2%/6%/7% for FY24/FY25/FY26, led by higher volumes, cost savings, and improved performance in 9MFY24. We believe JKCE is best placed among the regional players, given its expansion plans and strong execution strategy. We value JKCE at 14x FY26E EV/EBITDA to arrive at our revised TP of INR4,700. Reiterate BUY.

Grey cement volumes up 14% YoY; opex/t down 7% YoY

JKCE’s consolidated revenue/EBITDA/adj. PAT stood at INR29.3b/INR6.3b/ INR2.8b (up 20%/2.5x/7x YoY and in line/up 7%/22% vs. our estimates). Sales volumes stood at 4.7mt (up 14% YoY). Blended realization was at INR6,238/t (up 6% YoY; 1% above our estimate) in 3QFY24. Other operating income jumped 58% YoY/2% QoQ to INR917m in 3QFY24.

Opex/t declined 7% YoY (1% below our estimate), mainly led by an 18% decline in variable costs. Freight cost/employee cost per tonne rose 5%/9% YoY. OPM was up 11pp YoY to 21%, and EBITDA/t surged 123% YoY to INR1,330. Other income doubled YoY to INR385m.

In 9MFY24, revenue grew 22% YoY driven by 21% volume growth and a 1% increase in realization. EBITDA rose 55% YoY to INR15b, and OPM was up 4pp YoY to ~18%. EBITDA/t grew 29% YoY to INR1,080. Adj. PAT jumped 87% YoY to INR6b during the period.

Highlights from the management commentary

Grey cement capacity utilization stood at 75% in 3QFY24. Management guided for a volume of 16.5mt for grey cement in FY24, +16% YoY (implying 4% YoY volume growth in 4QFY24). Cement demand should grow between 7% and 9% in the medium term.

Fuel cost was INR1.8/kcal in 3Q vs. INR1.9 in 2QFY24. Further cost savings of INR30-40/t are expected in 4QFY24. It is carrying a fuel inventory of 60-75 days and benefits of the recent decline in fuel price will reflect from 1QFY25E.

Capex stood at INR9b in 9MFY24, and it should be at INR12b in FY24. Capex is estimated to be INR22b (including INR12b for the recently announced expansion) and INR18b in FY25 and FY26, respectively

View and valuation

JKCE reported a strong 21% YoY volume growth in 9MFY24, aided by capacity expansion and strong execution strategies. We estimate its consolidated volumes to report ~13% CAGR over FY23-26. The company has benefitted from timely capacity expansions, which will continue in the medium term too.

JKCE trades at 14x/12x FY25E/FY26E EV/EBITDA. We like JKCE due to its timely expansion, superior execution strategies, improvement in profitability, and favorable regional-mix. We value JKCE at 14x FY26E EV/EBITDA (vs. its five-year average EV/EBITDA of 13x) to arrive at our TP of INR4,700. Our TP implies an upside of 19% from its current levels. Reiterate BUY.

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