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Same palette, different strokes

Cement is a homogeneous commodity and its key input material is clinker. JSW Cement (JSWCL) adopts an unconventional route by using blast furnace slag, sourced from its group companies (primarily JSW Steel), in manufacturing ground granulated blast furnace slag (GGBS). Per industry sources, GGBS enjoys higher margins vs normal gray cement, thereby providing cashflow/margin stability during a volatile gray cement pricing scenario. Lower capex requirements help JSWCL set up cement capacities at a much faster rate – it saw capacity CAGR of ~14% during FY14-24, viz much higher than the industry’s ~7% long-term average. While the company commands 83.7% market share in GGBS, gray cement’s market share stood at 1.56% in FY24. Further, JSWCL has strategically located plants that are well-connected to raw material sources and key consumption markets and is, hence, leveraging on the group synergies. JSWCL is ‘Not Rated’.

Strong corporate lineage of JSW Group; group synergies to drive operational efficiencies

JSWCL is part of the JSW Group, a multinational conglomerate with a portfolio of diversified businesses across various sectors such as steel, energy, maritime, infrastructure, defence, business-to-business e-commerce, realty, paints, sports, and venture capital. The company sources key raw materials, such as blast furnace slag, from JSW Steel’s steel plants and power from JSW Energy through long-term PPAs for its operations. This has a positive impact not only on driving operational efficiencies but also on working capital management. Per our calculations, JSWCL has the lowest cash conversion cycle among peers (Exhibit 45). Overall, the company benefits from group synergies with the long established ‘JSW’ brand.

GGBS – Differentiator with a moat

GGBS is a strength enhancing compound that improves the durability of the concrete structure, apart from being cost effective. Slag (by-product of steel manufacturing) is the key input material (clinker not required) for GGBS manufacturing. In FY24, JSWCL procured ~91% of its slag requirements through long-term contracts with JSW Steel and its subsidiaries. Per DRHP, GGBS demand CAGR is expected at 15-16% over FY24-28 and reach ~11.5mt. Per our analysis, unit EBITDA in GGBS ranges between Rs1,400 and Rs1,500. Given its proximity to steel plants, and long-term contracts ensuring a smooth supply of slag, JSWCL captured 82.7% (per DRHP) market share in the GGBS segment and contributed 69% of its overall EBITDA (per our calculations) in FY24.

Cement segment: Soon to be a pan-India player

JSWCL’s current cement capacity is 20.6mtpa and per the DRHP, it aims to achieve total capacity of 60mtpa in the medium term. Per our calculations, JSWCL, in its peer group, has the lowest capital requirements toward installing a cement plant (Exhibit 38). This, we believe, can be attributed to easy access to slag (key input material for GGBS production) through JSW Steel and its subsidiaries, thus aiding swift capacity addition. Currently, JSWCL’s capacity mix is spread across south India (53%), west India (22%) and east India (25%). According to the proposed expansion plans (to 20.3mtpa), the company plans to enter the north region through the Nagaur, Rajasthan unit and the central region via Hatta, Madhya Pradesh plant. The commissioning of the abovementioned two units and related satellite griding units will pin JSWCL as a pan-India player

Healthy balance sheet

Per the DRHP, JSWCL’s net debt-to-EBITDA (excluding CCPS) stood at 3.43x in FY24. The company intends to utilize the net proceeds of the proposed fund-raise (of Rs20bn) toward prepayment or repayment of certain outstanding borrowings of up to Rs7.2bn. Notably, JSWCL reported a healthy operating cash flow-to-EBITDA conversion of ~130% (per our calculations) in FY24.

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