Emkay Global Financial's report on JK Cement
Our channel checks indicate strong volume growth for JKCE in Q2FY21 as the company benefits from new capacities. We expect 23-25% yoy volume growth for grey cement in Q2FY21 and 8.5%/14.6%/5% yoy in FY21/22/23E. Recovery in white cement/wall putty segments has been better than expected and we expect volume growth of 3-5% yoy in Q2FY21, though FY21 volumes may decline 10% yoy. Capacity expansion of 0.3mt (33% of existing capacities) in wall putty in Q3FY21 should help volume growth in FY22-23E. JKCE increased production capacity of grey cement by 3.5mt in FY20. The grinding unit of 0.7mt in Balasinor, Gujarat, will be commissioned in Q3FY21. Environment clearance for the proposed expansion at Panna, MP, is expected to be received in Q3FY21.
We raise sales volume estimates of grey cement by 4-5% and EBITDA estimates by 3-4% for FY21-23. JKCE benefits from stable cash flows in white cement (OPM of 25-30% in last 10 years). Cost saving strategies should help grey cement profits. We upgrade JKCE to Buy, based on 12x/11x Dec’22E (Sep’22E earlier) EV/EBITDA for white/grey segments.
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