JK Cement Q1 Results Review - Weak Volume Growth Impairs Ebitda Growth; Maintain Hold: Systematix

Systematix Research Report

JK Cement Ltd.’s results were largely in line with our expectations with revenue/Ebitda meeting our estimates while profit after tax exceeded our forecast due to lower depreciation and finance costs. Standalone revenue up 0.7% YoY (-10.1% QoQ) to Rs 26.4 billion in line with our estimate of Rs 27.0 billion owing to weak volume growth and dip in realizations.

Volume lagged industry growth average and was up only 4.8% YoY (-7.0% QoQ) to 4.7 million tonne (our estimate: 4.9 mt). Grey Cement volume stood at 4.33 million tonner per annum (+5.5% YoY) while White Cement volume remained flattish 0.39 mtpa.

Blended Realisation/tn dipped 3.9% YoY and 3.3% QoQ to Rs 5,594, versus our estimate of Rs 5,482. Ebitda was up by 19.0% YoY (-12.5% QoQ) to Rs 4.8 billion; in line with our est of Rs 4.6 billion. Ebitda/tonne rose 13.6% YoY (-6.0% QoQ) to Rs 1,014 supported by lower P&F cost. P&F cost dropped substantially to Rs 1,136/tonne (-22.6% YoY, -1.8% QoQ).

On the other hand, staff cost rose 14.1% YoY and 9.0% QoQ. Adjusted PAT was up 60.5% YoY due to low base effect (- 14.1% QoQ) to Rs 2.0 billion, versus our estimate of Rs 1.7 billion due to lower-than-expected depreciation and interest costs.

Capacity utilisation for the quarter was 77% (versus 87% in Q1 FY24) due to the newly commissioned facilities at Prayagraj. Blended Cement was flattish at 67% of the mix while trade sales improved to 63% (61% in Q4 FY24) of the total portfolio.

The share of premium products was 13%. The company expects a cost reduction of Rs 150-200 over the next two years, led by ~Rs 50 savings in freight cost coupled with operating leverage and energy cost savings. However, we expect price recovery to take place only post-monsoon.

We maintain our estimates and forecast a revenue/Ebitda/PAT CAGR of 11%/14%/16% over FY24-FY26E on the back of healthy volume growth led by sustained focus on expansion as well as operational efficiencies.

We raise our target price to Rs 4,275 valuing the company at 15 times (previous 14 times) EV/Ebitda. We maintain Hold on the stock.

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