MOSL: J K CEMENT (Buy)-Strong performance by White cement division

​J K Cement: Strong performance by White cement division

(JKCE IN, Mkt Cap USD1.2b, CMP INR1077, TP INR1324, 23% Upside, Buy)

• Volume growth above estimate: 2QFY18 revenue grew 20% YoY to INR11.1b (est. of INR9.9b). Grey cement volume rose 17% YoY to 1.93mt due to higher clinker exports to Nepal and strong growth in north due to market share gains (led by ramp-down of Binani Cement). White cement (incl. wall putty) volume rose 8.5% YoY to 0.30mt due to GST-led restocking and Katni unit ramp-up.
  
• Higher realizations drive margins: Grey cement realization rose 8% YoY (-1% QoQ) to INR3,943/ton due to better pricing in north. South realization declined 6% QoQ due to weak prices in Maharashtra. Blended realization rose 4% YoY (+2% QoQ) to INR4,981/t. EBITDA grew 32% YoY to INR2.07b (est. of INR1.59b), with the margin at 18.7% (+1.65pp YoY, - 0.3pp QoQ). Grey cement EBITDA/t rose 37% YoY to INR547, led by higher realization, partially offset by higher cost. Other expenses declined 23% QoQ, further boosting margins. White cement EBITDA increased 47% QoQ to INR1b, led by positive operating leverage. Hence, reported PAT rose 128% YoY to INR931m (est. of INR560m).
  
• Concall highlights: 1) Freight cost/t increased 10% QoQ due to a change in classification of freight cost related to clinker transportation for grinding units. 2) Estimated capex of INR2.5b in FY18 (incl. INR250m for putty expansion). 3) Standalone net debt at INR17.3b; reduction of INR1.8b in 1HFY18. 4) Spot petcoke prices rose INR600-700/t from average prices of 2QFY18.