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MOSL: ANNUAL REPORT THREADBARE (ART) | J K CEMENT-Return ratios remain subdued

​ANNUAL REPORT THREADBARE (ART) | J K CEMENT: Return ratios remain subdued

JK Cement’s (JKCE) FY16 annual report highlights an improvement in the operating performance, with consolidated EBITDA rising 21% to INR5.5b (FY15: INR4.5b) due to stabilization at UAE operations and cost-control measures. However, consolidated PAT declined 57% to INR0.6b (FY15: INR1.4b), with the margin contracting to a five-year low of 1.6% due to higher finance and depreciation charges. Grey cement (70% of revenue) realizations (-6% YoY to INR3.6k/ton) and EBITDA margin (-10bp YoY to 8.6%) remained under pressure, partly offset by higher realizations (+4% YoY to INR11k/ton) and EBITDA margin (+210bp YoY to 28.3%) for white cement. CFO grew 123% to INR6.4b (FY15: INR2.9b) due to working capital changes and also supported by an increase in non-trade payables by INR1b. FCF remained negative for the fourth consecutive year at INR-0.1b (FY15: INR-4.9b) due to high capex, which led to higher reliance on debt. Consequently, D/E stood at 2.1x (FY15: 2.0x). RoCE ex-CWIP (pre-tax) stood at a mere 9% due to high capital intensity and low utilization (66%). Contingent liabilities stood at 27% of net worth.

• Operating performance improves: EBITDA grew 21% to INR5.5b (FY15: INR4.5b), with the margin expanding 120bp to 14.4% (FY15: 13.2%) due to savings in input costs (mainly freight and fuel) and a positive operational contribution from the UAE business of INR0.6b (v/s operational loss in FY15).
  
• High depreciation and finance cost mars profitability: Despite EBITDA increase, consolidated PAT fell 57% to INR0.6b (FY15: INR1.4b) on account of higher finance cost of INR3b (FY15: INR2.3b) and depreciation charge of INR1.9b (FY15: INR1.5b). The rise is attributable to the cost getting expensed (earlier capitalized) post the commissioning of plants from mid-FY15. Further, PAT margin contracted to a five-year low of 1.6%.