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MOSL: J K CEMENT (Buy)-Realization improvement drives profits

J K Cement: Realization improvement drives profits

(JKCE IN, Mkt Cap USD1.2b, CMP INR1118, TP INR1322, 18% Upside, Buy)

• Grey cement profitability improvement led by better pricing: 4QFY17 revenue increased 7.7% YoY to INR10.2b (est. of INR9.8b). Grey cement revenue rose 6% YoY to INR6.9b (est. of INR6.5b) due to higher realization in north operations. White cement revenue increased 10% YoY to INR3.3b, led by growth of 5% YoY in volumes and 4% YoY in realizations. Grey cement volumes declined 2% YoY to 1.86mt (est. of 1.79mt) due to lower volumes in north operations. White cement (incl. putty) volumes growth was strong at 5% YoY to 0.29mt. Blended realizations increased 3% QoQ (+9% YoY) to INR4,736/t (est. of INR4,698) due to better realizations in north markets. Adj. PAT rose 40% YoY to INR983m (est. of INR496m), led by lower tax outgo and higher other income on account of certain provisions written back in 4QFY17.
  
• Margin expansion led by price increase: EBITDA grew 6% YoY (+22% QoQ) to INR1.81b (est. of INR1.57b), translating into margin of 17.8% (+1.1pp QoQ,
  
• -0.4pp YoY). Grey cement margin stood at 18.0% (+5pp QoQ; +3pp YoY) on account of higher realizations. White cement margin stood at 31.1% (-1.6pp QoQ; -4.0pp YoY). Blended EBITDA/ton stood at INR846 v/s est. of INR755 (+7% YoY, +10% QoQ), led by higher realizations and lower-than-expected cost increase due to low-cost inventory.