JK Cement - Expansion to drive volume growth - ICICI Securities

Key takeaways from JK Cement's (JKCE) Q4FY21 management concall include: (a) Demand in Q1FY22E has been impacted QoQ by the 2nd covid wave; however, prices continue to remain firm; (b) equipment orders placed for 4mnte Panna greenfield expansion; project is expected to commission in H1FY24E; (c) company expects 8-10% volume CAGR in its white cement / putty business over medium term; (d) net debt is unlikely to exceed Rs25bn from the current ~Rs17bn even after Rs30bn Panna expansion; and (e) company expects no major further provisioning towards impairment of its UAE subsidiary after providing Rs3.5bn over the past two years. Maintain BUY with an unchanged target price of Rs3,290/share (13x FY23E EV/E). Key risk: Lower demand / pricing.

- Grey cement realisation declined 1.6% QoQ in Q4FY21 owing to increase in non-trade mix (to 37% from 34% QoQ) and 50% QoQ increase in clinker sales to 0.22mnte. OPC share increased to 42% from 38% QoQ. The company booked incentives worth Rs800mn during FY21 and received incentives worth Rs400mn in FY21 with outstanding incentives at ~Rs700mn. Lead distance stood at 459kms, down from 472kms in Q3FY21. Average fuel cost including pet coke in Q4FY21 stood at Rs10,600/te. Pet coke constituted ~35% of the fuel mix.

- 4mnte Panna expansion progressing well. Ground-breaking ceremony was held on 5th May'21 and equipment orders are placed. Land for 2mnte grinding unit at Hamirpur has been acquired. Project is scheduled to be commissioned in H1FY24E.

- Total capex in FY22 is likely to be ~Rs14bn (Rs9bn towards Panna, Rs3.5bn towards regular capex, Rs500mn towards upgradation of Nimbahera Line No.3 and Rs500-600mn towards Mangrol expansion). FY23 capex is expected at Rs14bn (Rs2bn regular capex and Rs12bn capex for Panna expansion). Remaining capex of Rs5-6bn for Panna expansion will be incurred in FY24. Total debt repayment (including that of the UAE entity) is likely to be ~Rs7bn over the next 2 years.

- JKCE plans to meet 75% of its power requirement through green power by 2030 (~25% in FY21). Panna expansion is likely to have only WHRS (no coal based power plant) and going ahead, the share from solar and wind power is also likely to increase. There is also a possibility to build WHRS in its South India plant. JKCE is in the process of entering into an agreement for 20MW solar power capacity. The current operating WHRS capacity stands at 38MW.

- Management expects no further provisions for impairment in its UAE business after providing Rs3.5bn over the past two years. UAE business sold 0.112mnte volumes in Q4FY21 against 0.1mnte in Q3FY21. The UAE entity currently has an outstanding debt of Rs3.87bn to be paid over the next three years which will most likely be paid by the India entity if profitability of the UAE entity does not improve.

Shares of J.K.CEMENT LTD. was last trading in BSE at Rs.2788.85 as compared to the previous close of Rs. 2811.45. The total number of shares traded during the day was 5255 in over 1182 trades.

The stock hit an intraday high of Rs. 2814.95 and intraday low of 2760. The net turnover during the day was Rs. 14633139.

Source : Equity Bulls

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