Timely capacity additions ensures strong growth…
About the stock: JK Cement (JKC), one of the leading manufacturers of cement in India, has a total consolidated capacity of 24.4 million tonnes (mtpa), of which grey cement capacity is 22.2 mtpa and white cement (including wall putty) capacity is 2.2 mtpa. Company also has a 159 MW green power capacity (64 MW waste heat recovery and 95 MW solar & wind)
• Company is in process to take its grey cement capacity to 30 mtpa by FY26
Investment Rationale:
• Timely capacity additions ensures healthy volume growth: JKC has been focused on timely capacity additions, helped it to grow its cement volumes in double digits & gained market share. During FY23 & YTDFY24, company has increased it grey cement capacity by 7.5 mtpa, taking its grey capacity to 22.2 mtpa. On account of this, the grey cement volume growth remained strong at 15.8% YoY in FY23 and 20% YoY in 9MFY24. With another 2 mtpa scheduled to be completed by Q2FY25, the grey cement capacity would reach 24.2 mtpa. Moreover, a new 6 mtpa expansion plan has already been approved by the company, targeting total capacity of 30 mtpa by FY26 end. We believe the strong focus on timely capacity additions provide longer term visibility on the company’s volume growth. We estimate blended volume growth of 11.2% YoY during FY23-26E
• Margins to improve further over FY24-26E led by operational efficiency measures and improvement in capacity utilisation: After witnessing significant contraction in EBITDA/ton during FY23 to ₹ 810/ton (mainly due to increase in fuel cost), company’s EBITDA/ton has improved significantly during 9MFY24 to ₹ 1081/ton (+30% YoY) led by decline in fuel prices. Going ahead, we expect company’s EBITDA/ton to improve further to ₹ 1228/ton by FY26E, primarily led by realisation pick-up, operational efficiency measures (like improving product mix, increase in share of lowercost green power, supply chain measures) and positive operating leverage
Rating and Target Price
• With healthy volume growth (led by healthy demand, improvement in utilisation on ramp-up of new capacities) and operational efficiency measures, we believe company’s operational and financial performance to improve significantly over FY23-26E. We estimate revenue CAGR of ~13% over FY23-25E while EBITDA and PAT CAGR at ~28% and ~41%. With improvement in asset turnover and operating margins, return rations are set to improve over the next two years
• Valuation at 13.2x EV/EBITDA on FY26E basis looks attractive given strong growth ahead led by timely scaling-up of business (entering into a league of 30 mtpa capacity), growing its volumes in double digits & gaining market share. We value JK Cement at ₹ 5175 i.e. 16x FY26E EV/EBITDA
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