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Research
Buy JK Cement - Revenue, margins under strain - Elara Capital
Posted On : 2010-11-04 22:31:27( TIMEZONE : IST )
- JK Cement
- Rating : Buy
- Target Price : INR220
- Upside : 34%
- CMP : INR165 (as on 1 November 2010)
Lower cement prices burden the bottom line
JK Cement reported a net loss of INR294mn as compared to our estimates of INR31mn due to lower than expected revenue. JKCEM posted a 2.7% YoY decline in the revenues mainly due to drop in realizations. EBITDA margins contracted by 2,550bps YoY to 1.3% due to the negative EBITDA from the Karnataka unit. Due to lower revenues and margins, EBITDA weakened by 95.4% YoY to INR53mn.
Grey cement margins decline, cost pressures mount
Grey cement volumes increased 18.1% YoY to 1.13 mn tonne on the back of capacity additions. The realizations for the grey cement business, however, fell 21% YoY and 15.2% QoQ to 2,873 per tonne due to higher sales in the low priced South Indian market and an overall decline in cement prices. White cement volumes stood at 71,400 tonnes representing an increase of 5.8% YoY and 3.5% QoQ. The white cement realizations improved 8% YoY and 2.4% QoQ to INR13,301/tonne due to higher proportion of wall putty in the white cement sales volume.
The EBITDA per tonne for grey cement stood at ~INR112 as compared to INR983 in Q2FY10. The white cement EBITDA stood at ~INR2,494/tonne as compared to INR 2,851/tonne in Q2FY10. The blended EBITDA for Q2FY10 was INR44/tonne as compared to INR1,129/tonne in Q2FY10. The decline in realizations coupled with higher cost pressures have put stress on the EBITDA margins of the company which is likely to reduce going ahead.
Maintain Buy with a target price of INR220
At CMP of INR 165, the stock is trading at EV/tonne of ~USD51 on FY12 capacity. The stock is trading at a steep discount to its own replacement cost. Furthermore, we expect a sharp improvement in the profitability of the company in H2FY11 due to incisive increase in cement prices. We believe that the stable cash from white cement business and a strong volume growth in grey cement will enable the company to successfully sail through tough times.