Buy JK Cement; target of Rs 702: Edelweiss

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26 Aug, 2025 12:21

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 Edelweiss' research report on JK Cement

JK Cement’s Q2FY16 EBITDA at INR1.1bn (up 20% YoY) surpassed our INR983mn estimate riding improved white segment margin-up 180bps QoQ-tracking 2% realisation spurt. Overall white segment EBITDA grew 10% YoY and similar growth is expected in ensuing quarters as well. Grey cement volumes rose just 3% YoY (in line) due to subdued industry demand, while realisations increased 4% QoQ (2% our estimate). Grey segment EBITDA/t at INR268 stood higher than INR218 in Q1FY16/INR196 in Q2FY15 and is expected to improve going ahead on seasonal pick up in demand and prices in H2FY16. While our long-term industry view (expected demand improvement, slowing capacity additions and controlled cost inflation) remains positive, we have toned down our industry assumptions factoring in weak H1FY16 industry growth of just 1.3%. We expect industry demand to grow 5.0%/8.5% in FY16/FY17E (8%/10% earlier) and introduce FY18 estimate of 8% growth. Calibrating the same, we lower JKCE’s FY16/FY17E EBITDA 20% /12%, respectively. With a long-term positive view, we maintain ‘BUY’ with a revised target price of INR702 (INR890 earlier). We note that rollover to FY18 estimates will generate significant upside in the stock.

Grey cement: Weak demand pangs; white segment: UAE – a drag   Despite capacity addition, grey volumes grew just 3% YoY (up 4% in H1FY16) owing to tepid industry demand. Factoring the weakness, management has revised its volume guidance to 6.5-7.0mt FY16 from ~7.5mt earlier. While EBITDA growth for the domestic white segment remained steady at 10% YoY (with ~4% volume growth), UAE operations remained a drag with a mere break even at the EBITDA level due to pressure on prices and absence of grid power for production. Factoring the same, we lower our white segment EBITDA estimates by ~10% each for both FY16 and FY17.   

Outlook and valuations: Long-term sector positive; maintain ‘BUY’While downward revision in our industry assumptions (as discussed above) dents our utilisation and cement price rise forecast for FY16/FY17, virtually zero planned capacity addition in FY18 will aid significant improvement in both. We continue to value grey cement at 8x and white cement at 7x FY17E EV/EBITDA and maintain ‘BUY/SO’ with a target price of INR 702. At CMP, stock trades at ~7x FY17E EV/EBITDA. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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