JK Cement - Q1FY22 - Market share gains to continue - ICICI Securities

JK Cement (JKCE) Q1FY22 EBITDA at Rs4bn (up 86% YoY) was ahead of our and consensus estimates led by better grey cement realisation which grew 6% QoQ and lower total costs (up only 1% QoQ). Accordingly, blended EBITDA/te grew 8% QoQ and YoY to Rs1,323/te (I-Sec: Rs1,200). Management is targeting commissioning of 4mnte Panna expansion at a capex of Rs30bn by Mar'23. Net debt is unlikely to increase from the current levels of
- Standalone revenues up 69% YoY to Rs16.0bn, broadly in line with estimates. Grey cement volumes including clinker sale increased 73% YoY on a low base and declined 21% QoQ to 2.76mnte implying ~71% utilisation. Realisation surprised with 6% QoQ increase at Rs4,679/te owing to change in sales mix (Q4FY21 had higher clinker and non-trade sales vs the same in Q1FY22). White cement and wall care putty volumes declined 33% QoQ (up 50% YoY on a low base) to 0.26mnte owing to covid resurgence, while realisation fell 1.2% YoY / 3.7% QoQ at Rs11,811/te. Other operating income rose 1.1x YoY to Rs322mn led by higher volumes.

- Standalone EBITDA up 86% YoY to Rs4.0bn (I-Sec: Rs3.6bn). Blended cost/te declined 3.8% YoY owing to better operating leverage and increasing share of grey cement volumes. Raw material plus power and fuel costs/te was broadly flat QoQ, while freight cost/te grew 2.5% QoQ. Petcoke contributed 40% of the fuel mix and the balance was imported coal and alternate fuels. Management expects fuel mix to be broadly same in the near term. Increase in petcoke prices is not reflected in power and fuel cost for Q1FY22 owing to available low-cost inventory. Other expenses/te increased 6% YoY and declined 12% QoQ. Employee costs increased 13% QoQ to Rs1.2bn on account of salary increments and new recruitments for expanding into new markets. PAT grew 1.7x YoY to Rs2.1bn (I-Sec: Rs1.8bn).

- Capex of Rs12.5bn is expected to be incurred in FY22 primarily on account of Panna expansion (Rs9bn) and the remaining towards Nimbahera plant upgradation and other efficiency capex. Company is likely to incur capex of Rs14bn in FY23 and expects Panna commissioning by Mar'23.

- On ESG front, the company aims to improve its clinker ratio, increase blended cement contribution, and reduce power consumption by increasing thermal substitution via use of alternate fuels. It plans to set up a 22MW WHRS at its Panna plant. It is also planning to set up a WHRS at its South India plant (15MW capacity at an estimated cost of Rs1.75bn). Company is identifying opportunities to increase power generated from wind and solar energy. Currently, 25% of power is met by WHRS, which is expected to reach >50% in the coming years.

Key takeaways from conference call

- On the pricing front, North region witnessed prices decline by Rs5-6/bag from the Jun'21 exit rate. The price dip in South has been marginally higher as compared to North. The gap between trade and non-trade prices is currently Rs30/bag. Demand in Aug'21 is panning out to be similar to Jul'21 levels. Management expects demand to improve from Q3FY22 onwards.

- Petcoke contributed 40% of the fuel mix and the balance was imported coal and alternate fuels. Management expects the fuel mix to be broadly same with minor adjustments. Increase in petcoke prices is not reflected in power and fuel cost for Q1FY22 owing to available low-cost inventory. Company still has the low-cost inventory adequate for two months of consumption. While Q2FY22 power and fuel cost is likely to increase owing to upgradation of line-3, the full impact of increase in petcoke prices is likely to get reflected from Q3FY22 onwards. Petcoke prices have seen an increase of Rs2,500/te from the average price in Q1FY22 and imported coal prices have increased by US$25/te on purchase basis.

- Other highlights: (1) Trade share in Q1FY22 stood at 68% while blended cement share stood at 62%. Company is working towards increasing trade sales, which will result in higher sales of blended cement (target ~70%). (2) Lead distance for Q1FY22 stood at 450km. (3) UAE operations registered volumes of 0.01mnte in Q1FY22. (4) Value-added products (~5% of revenues) form a part of white cement revenues. (5) In Q1FY22, rail:road mix stood at 16:84. (6) Two years back when the company embarked on increasing the capacity by 4.2mnte, it was estimating an efficiency gain of Rs150/te; it has already realised gain of Rs100/te from the same.

- Management expects net debt to remain below Rs30bn even after Panna expansion. In Q1FY22, standalone gross debt stood at Rs28.1bn (as against Rs28.4bn in Q4FY21) and cash balances at Rs14.1bn (vs Rs17.1bn in Q4FY21) taking the net debt to Rs14bn (against Rs11.3bn in Q4FY21). Debt of the UAE subsidiary stood at Rs2.58bn, which will likely be repaid over the next two years. Management does not foresee any further impairment in value of its UAE subsidiary. Working capital loan stood at Rs1.25bn.

Shares of J.K. CEMENT LTD was last trading in BSE at Rs. 3182 as compared to the previous close of Rs. 3116.85. The total number of shares traded during the day was 5601 in over 1368 trades.

The stock hit an intraday high of Rs. 3210 and intraday low of 3113.8. The net turnover during the day was Rs. 17715838.

Source : Equity Bulls

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