Q3FY24 Review: JK Cement: Good Q3; Central India expansion announced

24 Jan 2024 , 12:53 PM

JK Cements (JKCE) reported a strong operating performance with Q3FY24 Ebitda growing 153% YoY and 34% QoQ to Rs6.3bn – 16% beat. Profit growth was driven by 14% YoY volume growth and 123% YoY increase in Ebitda/t to Rs1,329. JKCE announced capacity additions in Central-East India, which would increase its cement capacity to 30mn MT by FY26. Increasing capex would also drive up net-debt/Ebitda to 1.7x by FY26 (vs 1x earlier); but still at manageable levels. Analysts of IIFL Capital Services upgrade FY24-26 Ebitda by 6% each and value the company at 13.5x FY26 EV/Ebitda. BUY. 

Strong all-round performance: 

JKCE’s Q3FY24 consolidated Ebitda grew by 153% YoY and 34% QoQ to Rs6.3bn – 16% beat on better-thanexpected profitability. Grey cement volumes grew 14% YoY and 6% QoQ to 4.2mnt, given ramp-up in new capacities (50% increase since FY22). Capacity utilisations stood at 75% vs 78% YoY. The Ebitda/t surged 123% YoY and 29% QoQ to Rs1,329; driven by easing cost pressures and price hikes (grey cement realisations up 3.5% QoQ). 

Targeting 30mnt capacity by FY26: 

JKCE added 1.5mnt GU in Ujjain (MP) in Nov’23 and another 2mnt will be added in Prayagraj (UP) by Q2FY25. Further, JKCE has approved an expansion in Central-East India and targets to add 3.3mn MT clinker and 6mn MT cement capacity by FY26. The clinker line will be added at its Panna plant, while 1mn MT GUs would be added at Panna (MP), Hamirpur (UP) and Prayagraj (UP). In addition, JKCE will add 3mn MT Greenfield GU in Bihar – with this it would foray into the East region. Total capex for this expansion is Rs28.5bn (US$57/MT). As a result, JKCE has upped its FY25/26 capex to Rs22bn/ Rs18bn respectively. JKCE has started to seed the Eastern UP and Bihar markets. Increasing share of Central India in volumes would not impact profitability as despite the lower prices, higher efficiencies and incentives would ensure North equivalent profitability. 

Upgrade Ebitda; BUY:

Analysts of IIFL Capital Services increase FY24-26 Ebitda by 6% each as they factor in better profitability. Further, lofty expansion capex would increase gross debt to Rs55-60bn by FY26; this would increase net-debt to Ebitda to 1.7x (from 1x earlier), but still lower than the company ceiling of 2x. They value JKCE at 13.5x FY26 EV/Ebitda & ascribe fair value of Rs4,250.