JK Cement - Market share gains to continue - ICICI Securities

Key takeaways from JK Cement's (JKCE) management concall include: (a) commissioning of 4mnte greenfield expansion at Panna, MP, at a capex of Rs30bn, expected by H1FY24E; (b) net debt unlikely to exceed Rs25bn from the current ~Rs20bn even after the expansion; (c) demand remains strong in Q4FY21 while prices are trending broadly flat QoQ; (d) company expects double-digit volume growth to sustain in white cement / putty, despite competitive pressures; (e) company expects input cost escalations to be passed-on and sustain / improve on the current 25% EBITDA margins. Maintain BUY with the target price unchanged at Rs2,890/share (12x FY23E EV/E). Key risks: lower demand / pricing.

- Commissioning of 4mnte integrated Panna greenfield expansion expected by H1FY24E: The project would include 8000tpd clinkerisation with 2mnte grinding unit along with 22MW WHRS with split grinding unit at Hamirpur, Uttar Pradesh. The project would be entitled to various state government incentives including capital subsidy in Madhya Pradesh and GST benefits in Uttar Pradesh. Net debt is unlikely to exceed Rs25bn from the current ~Rs20bn even after expansion, as per the management. Panna also has scope for an additional 4-6mnte brownfield expansion in future. Given that land and infrastructure costs are loaded upfront, capex of Rs30bn, or US$103/te, for the current 4mnte expansion appears high.

- Demand remains strong in Q4FY21 while pricing remains broadly flat QoQ: Management believes demand in infrastructure segment is likely to remain strong over next few years. Non-trade sales increased to 34% with OPC constituting 38% of the overall volumes in Q3FY21. Prices may be hiked to pass on cost escalations.

- Cost efficiencies to contain escalations: Recent commissioning of 4.2mnte Mangrol expansion along with modernisation of 0.3mnte plant at Nimbahera is likely to provide cost savings of Rs100/te (half of it is already realised). There was 20% shift from usage of petcoke to imported coal in Q3FY21 and the share of imported coal is likely to increase further. Management believes various input cost escalations are likely be passed on and the current 25% EBITDA margin is likely to be sustained / improved over the next few years.

- Management has guided for overall capex outlay of Rs8bn, Rs11bn and Rs13bn respectively over the next three years. Given strong OCF of >Rs10bn p.a., net debt is unlikely to increase from the current level of Rs20bn even after factoring- in the above-mentioned capex in our view, and 'net debt to EBITDA' is likely to reduce from the current 1.3x to 1x by FY23E.

- Market share gains to continue: While the recent 4.2mnte Mangrol expansion would drive volume growth over FY21E-FY23E, the 4mnte Panna expansion would drive growth beyond FY24E. We factor 14% volume CAGR over FY20-FY23E and expect blended EBITDA/te to rise from Rs1,186/te in FY20 to Rs1,376/te in FY23E.

Shares of J.K.CEMENT LTD. was last trading in BSE at Rs.2711.75 as compared to the previous close of Rs. 2422.05. The total number of shares traded during the day was 49732 in over 5273 trades.

The stock hit an intraday high of Rs. 2898.85 and intraday low of 2408.25. The net turnover during the day was Rs. 130257733.

Source : Equity Bulls

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