JK Cement - Volume / profitability to improve with expansion - ICICI Securities

JK Cement's (JKCE) Q1FY21 standalone EBITDA declined 29% YoY to Rs2.15bn, marginally better than our/consensus estimates of Rs1.96bn owing to lower costs. Total cost/te declined 4% YoY (I-Sec: 1% YoY) owing to reduction / deferment of discretionary costs. Hence, blended EBITDA/te was down only 7% YoY to Rs1,219/te (I-Sec: Rs1,125/te). We believe ramping-up of new capacity at Mangrol would not only provide additional volumes but also improve cost structure / profitability. Consolidated net debt is likely to peak out at Rs24bn in FY21E as JKCE could generate OCF of >Rs10bn p.a. from FY22E which would be sufficient for its future capex requirements. We maintain our FY21E-FY22E EBITDA with target price unchanged at Rs1,725/share (10x FY22E EV/E). Maintain BUY.

- Standalone revenue declined 28% YoY at Rs9.5bn, in-line with estimates. Grey cement volume (including clinker) decline was lower than industry average at 19% YoY to 1.59mnte owing to better growth in North markets also aided by expansion. Grey cement realisation increase of 0.7% QoQ (down 0.5% YoY) to Rs4,648/te was lower than our expectations owing to increasing share of North region volumes. White cement and wall care putty volumes declined 48% YoY to 0.18mnte.

- Standalone EBITDA declined 29% YoY to Rs2.15bn (I-Sec: Rs1.96bn). Blended cost/te declined 4% YoY (flat QoQ) owing to 45% YoY decline in other expenses from Rs2.3bn to Rs1.3bn led by likely reduction / deferment of discretionary costs. Raw material and power & fuel cost/te increased 2% YoY/ 11% QoQ led by higher inventory adjustment; while freight cost/te declined 7% YoY/ 6% QoQ led by better logistic optimisation. PAT declined 50% YoY to Rs777mn (I-Sec: Rs678mn). Consolidated EBITDA declined 31% YoY to Rs2.13bn. UAE subsidiary registered EBITDA loss of Rs27mn vs EBITDA of Rs48mn YoY and Rs58mn QoQ respectively.

- Remaining small part of expansion getting delayed owing to Covid-19: JKCE commissioned 2.6mnte clinker unit at Mangrol and 3.5mnte grinding capacity in H2FY20, while commissioning of 0.7mnte grinding unit at Balasinor and modernisation of 0.3mnte line-3 at Nimbahera has been delayed by 6-9 months to Q3FY21 and Q2FY22 respectively, due to Covid-19 outbreak. JKCE has already spent Rs15.1bn (out of planned Rs20bn) on the Mangrol expansion project.

- Consolidated net debt likely declined by Rs2.8bn QoQ to Rs20.5bn as of Jun'20-end with capex spend of just Rs140mn in Q1FY21. JKCE would incur capex of Rs4bn for ongoing expansion projects and Rs2.5bn for line-3 Nimbahera modernisation in FY21. Net debt to EBITDA ratio may decline from 1.9x in FY20 to 1.3x in FY22E. JKCE is likely to generate OCF of >Rs10bn p.a. from FY22E which would be sufficient for its future capex requirements.

Shares of J.K.CEMENT LTD. was last trading in BSE at Rs.1482.05 as compared to the previous close of Rs. 1497.85. The total number of shares traded during the day was 375 in over 134 trades.

The stock hit an intraday high of Rs. 1497.65 and intraday low of 1474.45. The net turnover during the day was Rs. 557638.

Source : Equity Bulls

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