Hold JK Cement; target of Rs 1348: Emkay Global Financial

Emkay Global Financial's report on JK Cement

JKCE’s Q4 performance was above estimates, with EBITDA at Rs3.5bn vs. estimated Rs2.9bn and EBITDA/ton at Rs1,298 vs. est. of Rs1,019, led by 1) reversal of dealers’ incentives of Rs200-250mn and 2) lower-than-expected increase in opex/ton. Key positives: 1) Grey cement’s realization growth of 6% qoq (3.6% qoq growth adjusted for reversal of dealers’ incentives), 2) 0.7% yoy rise in opex/ton, lower than estimated rise of 1.7%, 3) EBITDA/ton growth of 33.7% yoy and 4) 1.9x yoy increase in OCF. Management believes that current cement prices are up by Rs10/bag from Q4FY20. It commissioned capacities of 3.5mt in FY20 and balance grinding unit of 0.7mt at Balasinor, Gujarat, will be commissioned in Q3FY21. Capex in FY21 will be restricted at Rs5bn.

Outlook

We raise FY21/22/23E EBITDA by 21.6%/10.5%/15.2% on better realization trends. Cost-saving strategies have yielded results and it is further working on improving operational efficiencies at the North plant. Maintain the Hold rating as we await better entry points.

JK Cement 19062020