MOSL: J K CEMENT (Buy)-Margins impacted by sequentially weaker realizations
J K Cement: Margins impacted by sequentially weaker realizations
(JKCE IN, Mkt Cap USD1.1b, CMP INR1058, TP INR1343, 27% Upside, Buy)
- Volume growth above estimates: 3QFY18 grey cement volumes (including clinker) increased 12% YoY to 2.03mt (est. of 1.94mt), led by growth in the north and south operations, as well as higher clinker sales. White cement volumes increased 12% YoY to 0.3mt, led by 20% YoY growth in wall putty due to ramp-up of new capacity.
- Lower realizations dent margins: Grey cement realizations declined 3% QoQ to INR3,817/ton, driven by weaker realizations in underlying markets. Revenue grew 24% YoY to INR11.26b (est. of INR11.25b), led by volume growth in grey cement. EBITDA was flat YoY, but declined 18% QoQ to INR1.7b (est. of INR1.83b), led by weaker realizations and cost push. Margin shrunk 3.6pp YoY (-3.5pp QoQ) to 15%. Grey cement EBITDA/t stood at INR376 (-17% YoY) v/s our estimate of INR405 due to cost push on account of higher P&F and freight cost, partially offset by a 7% YoY increase in realization. White cement EBITDA of INR940m (-2% YoY, -8% QoQ) came in lower than our estimate due to cost push. Adj. PAT rose 11% YoY to INR730m (est. of INR720m), led by lower interest and depreciation.
- Concall highlights: 1) Management has approved brownfield expansion of 4.2mt of grey cement capacity (with a clinker unit in Rajasthan and associated split grinding units in Rajasthan, UP and Gujarat) at a capex of INR20b (USD73/t). 2) S/A net debt stood at INR17.4b (has reduced by INR1.6b over 9MFY18).
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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