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MOSL: J K CEMENT (Buy)-Improvement in grey cement profitability offsets weakness in white cement

​J K Cement: Improvement in grey cement profitability offsets weakness in white cement

(JKCE IN, Mkt Cap USD1.1b, CMP INR1033, TP INR1277, 24% Upside, Buy)

• Price improvement drives grey cement profitability: 1QFY18 revenue increased 16.4% YoY to INR10.4b (est. of INR9.8b). Grey cement volumes increased 15% YoY on account of higher clinker exports to Nepal. Growth was higher in southern operations due to a favorable base. White cement volumes were flat YoY due to GST-led destocking, the impact of which was offset by higher wall putty volumes due to ramp-up of operations in Katni. Blended realizations increased 2% QoQ (+3% YoY) to INR4,902/t (est. of INR4,861) due to better realizations from grey cement on account of price hikes in Maharashtra. Adj. PAT increased 13% YoY to INR793m (est. of INR796m), led by higher EBITDA.
• Margin expansion led by price increase: EBITDA grew 13% YoY to INR1.98b (est. of INR1.85b), translating into a margin of 19% (+0.32pp QoQ, -0.56pp YoY). Freight cost increased 11% QoQ due to overloading restrictions and also clinker exports entailing higher lead distances. Blended EBITDA/ton stood at INR931 (est. of INR922, +4% QoQ), with grey cement EBITDA/t at INR686.
• Other key highlights: 1) Estimated capex of INR2.5b in FY18, inclusive of putty expansion. 2) Net debt at INR19.5b in standalone operations. 3) UAE profitability not seeing meaningful improvement. 4) White cement volumes normalized in August due to GST impact.