JK Cement Ltd. share price target

Sector: Cement /Small Cap | Earnings Update 2QFY20 Background: JK Cements is one of the largest cement players in North India. It manufactures grey/ white cement and white cement based wall putty. Currently the grey cement capacity is 10.5MTPA while white cement capacity is 0.6MTPA (second only to UltraTech). The company also manufacturers putty and has an installed capacity of 0.7MTPA. The company also has plants in Fujairah (UAE) with an installed capacity of 0.6MTPA (white cement) and 1.02MTPA (grey cement) in a 90:10 JV with the Government of Fujairah. It has also expanded its grey cement capacity by 3 MTPA through two split grinding units (1.5 MTPA each), one at Mangrol...

We estimate the co to deliver consolidated EBITDA/PAT CAGR of 22/35% during FY19-22E. We reiterate BUY with a higher TP of Rs 1,523 as we value its consol Sep'21E EBITDA at 10x and ascribe 50% value to its FY21/22E CWIP. The stock trades at attractive valuations of 9.0/8.4x FY21/22E EBIITDA and at EV of USD 100/MT. We reiterate BUY on JK Cement (JKCE) with a TP of Rs 1,523 (10x Sep21 consol EBITDA), implying EV USD 115/MT. We continue to like the co for its strengthening capability and strong presence in white/putty segment.

clinker) increased 2% YoY to 1.9mt (in-line), while white cement volumes were up 13% YoY to 0.33mt in 2QFY20. For 2H, we expect sales/EBITDA/PAT to (1) JKCE commissioned a 1mt grey cement grinding unit at Nimbahera and a 2.6mt grey clinker at Mangrol on 29 of cement grinding capacity will be commissioned soon. (2) Total amount JKCEs capacity expansion will reduce its proportion of inefficient assets. The company is expanding its putty capacity by 0.2-0.3mt by Jun20 at a capex of JKCEs capacity expansion will reduce its proportion of inefficient assets. We value JKCE on an SOTP basis (FY21E EV/EBITDA) 10x for white cement, 9x for grey cement and 6x for overseas (Fujairah) to arrive at a target price of INR1,370. We value JKCE on an SOTP basis (FY21E EV/EBITDA) 10x for white cement, 9x for grey cement and 6x for overseas (Fujairah) to arrive at a target price of INR1,370.

For Q2FY20, JK Cement reported a mixed set of numbers. Revenues were 14% higher YoY at | 1254.2 crore (vs. I-direct estimate of | 1,229 crore). This was driven mainly by 10% growth in realisations to ~| 5,600/t (broadly inline with I-direct estimates) and 3.6% growth in volumes to 2.24 MT (vs. Idirect estimate of 2.2 MT). Led by an improvement in realisations, EBITDA margins improved 480 bps YoY to 20.3% but remained below I-direct estimates of 22.1% owing to higher-than-expected raw material costs and other expenses. EBITDA/t for the quarter was at | 1,135/t, up 44% YoY (vs. I-direct estimate of | 1,240/t). Led by improvement in profitability, EBITDA witnessed a 50% increase YoY to | 254 crore (vs. I-direct estimate of | 271.4...

We reiterate BUY on JK Cement with a TP of Rs 1,314 (10x FY21 consolidated EBITDA). JKCE is strengthening its grey cement business through expansions and up-gradation. In white/putty segment, its steady expansions in near duopolistic market (in India) will continue boost profits. We reiterate BUY with a higher TP of Rs 1,314 at 10x its FY21E consolidated EBITDA (implied EV of USD 96/MT). The stock trades at attractive valuations of 8.2x FY21E EBIITDA and at EV of USD 85/MT.

While northern operations of the company were facing clinker bottlenecks, soft demand led to grey cement volume decline of 3.3% for JK Cement for Q1FY20. To address clinker bottlenecks, the company has capex plans underway. The new clinker line at Mangrol unit for a 7500 TPD capacity is expected to be commissioned by September 2019. Further, in FY21E (December 2020) the capacity of the third clinker line at Nimbahera plant would be enhanced by 1000 TPD to 6000 TPD. Another 1 MT brownfield expansion of grinding capacity at its Mangrol unit would be commissioned...

Grey cement volumes decline; white cement volume growth healthy: Grey cement volumes (incl. clinker) decreased 3% YoY to 1.97mt, while white cement volumes were up 21% YoY to 0.34mt in 1QFY20. Combined realizations stood at INR5,753/t (+19% YoY;+11% QoQ). Revenue increased 19% YoY to INR13.3b (our est. of INR12.7b). Healthy realizations boost profitability: Blended EBITDA/t increased 102% YoY to INR1,315 due to healthy realization, partially offset by 6% YoY rise in cost/t. EBITDA grew 102% YoY to INR3.03b (our est. of INR 2.6b), with margin...

View: Robust performance led by strong realization; Buy JKCE posted a strong set of numbers with 19%/ 101.8%/ 211.8% YoY growth in revenue/ EBITDA/ APAT to `11.3 bn/ `3 bn/ `1.5 bn in Q2FY20 driven by strong 19.4% YoY/ 11% QoQ blended realization growth. We expect 15.1/ 20.3%/ 15.9% revenue/ EBITDA/ APAT CAGR over FY19-21E led by 8.9%/ 12.3% blended volume growth and 6.5%/ 1.8% blended cement realization growth in FY20E/ FY21E. We like JKCE because of its sizable presence in higher EBITDA margin (25-28%) contributing white...

Growth was Driven Due to Improvement in Sales Volume & Realizations: Healthy volumes to drive growth: The Sales volume in Q4FY19 was 29 MnT as against 27 MnT in Q4FY18, registering a growth of 6% YoY basis.