MOSL: J K CEMENT (Buy)-Margins impacted by weaker realizations and cost push
J K Cement: Margins impacted by weaker realizations and cost push
(JKCE IN, Mkt Cap USD0.8b, CMP INR766, TP INR1051, 37% Upside, Buy)
- Volume growth healthy: 1QFY19 grey cement volumes (incl. clinker) increased 9% YoY to 2.03mt, led by healthy growth in cement volumes, partially offset by lower clinker sales. White cement volumes rose 9% YoY to 0.28mt, driven by healthy growth in the wall putty segment due to ramp-up of new capacity.
- Cost push, weak realizations dent margins: Grey cement realizations fell 2% QoQ to INR3,807/ton, with the change in ex-factory sales reflected in lower freight cost/t (-5% QoQ). Revenue grew 7% YoY to INR11.16b, led by healthy volumes, partially offset by weaker realizations. EBITDA fell 24% YoY (-17% QoQ) to INR1.5b due to weaker realizations and cost push in the form of higher power & fuel cost/t and employee cost/t. Margin shrank 5.5ppYoY (-0.3pp QoQ) to 13.5%. Blended EBITDA/t declined 30% YoY (-3% QoQ) to INR650. Interest cost fell 20% YoY to INR547m due to a reduction in debt levels. Other income fell 15% YoY to INR158m. Thus, PAT declined 37% YoY to INR493m.
- Concall highlights: (1) Capacity expansion of 4.2mt will be commissioned by FY20. (2) Would incur capex of INR4-5b in FY19 toward expansion projects and maintenance cost. (3) White cement operating margin stable QoQ. (4) OPC/PPC mix is 40:60. (5) Road/rail mix is 80:20.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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