MOSL: J K CEMENT (Buy)-Healthy realizations aid margin expansion
J K CEMENT: Healthy realizations aid margin expansion
(JKCE IN, Mkt Cap USD1b, CMP INR961, TP INR1160, 21% Upside, Buy)
- Grey cement volumes decline; white cement volume growth healthy: Grey cement volumes (incl. clinker) decreased 3% YoY to 1.97mt, while white cement volumes were up 21% YoY to 0.34mt in 1QFY20. Combined realizations stood at INR5,753/t (+19% YoY;+11% QoQ). Revenue increased 19% YoY to INR13.3b (our est. of INR12.7b).
- Healthy realizations boost profitability: Blended EBITDA/t increased 102% YoY to INR1,315 due to healthy realization, partially offset by 6% YoY rise in cost/t. EBITDA grew 102% YoY to INR3.03b (our est. of INR 2.6b), with margin expanding 9pp YoY to 23%. Tax rate was at 29% in the quarter, as against 23% in the year ago period. PAT grew 3x YoY to INR1.5b (our est. of INR1.2b).
- Concall highlights: (1) Work for the 7,500TPD clinker production line and 1mt cement grinding unit at Mangrol is on in full swing and is likely to be completed by Sep'19. (2) Trial run for the 1mt cement grinding capacity at Nimbahera was done in Jun'19. Normalization will take another two months. (3) Work on the 1mt grinding unit at Aligarh and 0.7mt grinding unit at Balasinor is progressing smoothly and is expected to get completed by Dec'19 and Mar'20, respectively. (4) Total amount spent on expansion till 30thJun'19 is ~INR9b.
- Valuation view: JKCE's capacity expansion will reduce its proportion of inefficient assets. The white cement business has gained meaningful scale and deserves premium valuations, given raw material scarcity and JKCE's 40-45% share in the domestic white cement market. We increase our EBITDA estimate by 6% due to increase in realizations. Our EPS estimate for FY21 remains unchanged as upgrade in EBITDA is offset by higher depreciation and interest cost. We value the white cement business at 10x, grey cement at 9x and Fujairah at 6x FY21E EV/EBITDA to arrive at a TP of INR1,160. Buy.
J.K. Cement Limited is an India-based holding company. The Company is engaged in manufacturing cement and cement products. Its product portfolio includes grey cement, white cement and wall putty. It offers a range of grey cement, which include Portland Pozzolana cement (PPC), ordinary Portland cement (OPC) and Portland slag cement. Its white cement portfolio includes J.K. White Cement, J.K. Wall Putty, J.K. Waterproof and J.K. Primaxx. It white cement is used for decorative and architectural applications. J.K. Wall Putty is a white cement based fine powder, which provides a base for concrete/cement plastered walls and ceilings. J.K. Water Proof is a water repellant powder, which prevents passage of water through pores and capillaries of the concrete. JK PRIMAXX is a product used for interiors and exteriors. Its grey cement plants are located in Rajasthan and Karnataka. Its white cement and white cement-based wall putty plants are located in Rajasthan and Madhya Pradesh.
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