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JK Cement--Higher costs, low pricing erode margins…
JK Cement’s Q3FY11 revenues grew 10% YoY to | 473.3 crore while net
profit declined 96% YoY to | 1.8 crore. However, the results were above
our respective estimates of | 459 crore and net loss of | 12 crore in
Q3FY11 on account of higher than expected realisation and stock
adjustment of | 32 crore. OPM improved by 1018 bps QoQ (985 bps dip
YoY) to 11.4% (our estimate: 8.2%) while blended EBITDA per tonne
increased significantly to ~| 427 per tonne in the quarter (our estimate: |
174 per tonne) from | 44 per tonne in Q2FY11. Going forward, we expect
realisations to improve on account of increasing demand and better
utilisation rates. However, increase in coal and freight cost would keep
margins under pressure.
Blended volume up ~17% YoY (~6% QoQ), realisation up ~7% QoQ
Grey cement sales volume jumped ~17% YoY (4.5% QoQ) to 1.18
MT. White cement sales volume increased ~17% YoY (21.1% QoQ)
to 0.86 LT. Grey cement realisation declined ~12% YoY (up 3.5%
QoQ) to | 2977 per tonne. On the other hand, realisation of white
cement increased sharply by 17.2% YoY (6.2% QoQ) to | 14,073 per
tonne.
EBITDA per tonne improves QoQ to ~| 427 per tonne
EBITDA per tonne increased significantly on a sequential basis to |
427 per tonne on account of a sequential improvement in realisation
and stock adjustment of | 32 crore. Total cost declined 4% QoQ
(increased 6% YoY) to | 3307 per tonne while the blended realisation
improved ~7% QoQ (~6% YoY decline) to | 3734 per tonne. Thus,
the EBITDA margin has improved by 1018 bps QoQ to 11.4%.
Valuation
At the CMP of | 137, the stock is trading at 15.3x and 10.1x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 7.0x
and 6.2x its FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $58 and $49 its FY12E and FY13E capacities,
respectively. We are assigning an ADD rating to the stock with a revised
target price of | 148 per share. At the target price, the stock is trading at
$60 per tonne at its FY12E blended capacity (Grey and White) of 7.9 MTPA.
Net sales rise 10% YoY and 13% QoQ on better sales volume
Net sales increased ~10% YoY (13% QoQ) to | 473.3 crore in Q3FY11 on
account of better than expected growth in white cement realisation and
blended sales volume. Grey cement sales increased ~3.3% YoY (8.2%
QoQ) to | 352 crore on the back of ~17% YoY (4.5% QoQ) growth in sales
volume to 1.18 MT, which negated the impact of 11.6% YoY decline (up
3.5% QoQ) in realisation of | 2977 per tonne. Increase in grey cement
volumes (YoY) was on account of capacity expansion of 3 MTPA in
Karnataka. On the other hand, white cement sales (including wall putty)
increased ~37% YoY (~29% QoQ) to | 121.7 crore on the back of a ~17%
YoY (~21% QoQ) increase in white cement sales volume to 0.86 LMT and
17.2% YoY (6.2% QoQ) increase in white cement realisation to | 14,073
per tonne.
EBITDA margin dips 985 bps YoY while it jumps 1018 bps QoQ
The decline in EBITDA margin by 985 bps YoY to 11.4% was mainly on
account of 6% YoY decline in blended realisation to | 3734 and ~6% YoY
growth in total cost per tonne to | 3307. As a result, the blended EBITDA
per tonne reported a decline of 49% YoY to ~| 427 per tonne. However,
on a sequential basis, the EBITDA per tonne increased significantly on the
back of growth in blended realisation by 7% supported by a 4% drop in
total cost per tonne for the same period. Sequentially, the margin
expanded by 1018 bps mainly due to a better-than-expected performance
by the white cement segment.
As a major cost contributor, power & fuel cost increased 37% YoY (28%
QoQ) to | 1178 per tonne on account of an increase in petcoke prices. The
freight cost increased 2% QoQ to | 861 per tonne on account of an
increase in diesel prices and increase in proportion of road transportation.
The raw material cost increased by 18% YoY (13% QoQ) to | 569.3 per
tonne on account of an increase in costs of basic raw materials like slag
and fly ash. The employee cost increased by 11% YoY (declined by 10%
QoQ) to | 230 per tonne. Other expenditure declined by 10% YoY to |
722.1 crore while it remained flat on a sequential basis due to lower
expenditure on maintenance.
Net profit nosedive 96% YoY but recovers from QoQ loss
JK Cement reported a net profit of | 1.8 crore as against a net loss of ~|
21 crore reported in Q2FY11 on the back of the better performance of the
white cement segment and stock adjustment of | 32 crore. However, net
profit declined 96% YoY on lower realisation and higher depreciation and
interest charges. The depreciation and interest costs surged 12% YoY (3%
QoQ) and 26% YoY (6% QoQ) to | 28 crore and | 27 crore, respectively.
Capex plan
The company is increasing its grey cement capacity by 2.5 MTPA through
the brownfield expansion at Mangrol, Rajasthan. This is expected to get
commissioned by Q4FY13 and would increase the grey cement capacity to
10 MTPA by FY13.
Valuations
At the CMP of | 137, the stock is trading at 15.3x and 10.1x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 7.0x
and 6.2x its FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $58 and $49 its FY12E and FY13E capacities,
respectively. We have assigned an ADD rating to the stock with a revised
target price of | 148 per share. At the target price, the stock is trading at
$60 per tonne at its FY12E blended capacity (Grey and White) of 7.9 MTPA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JK Cement--Higher costs, low pricing erode margins…
JK Cement’s Q3FY11 revenues grew 10% YoY to | 473.3 crore while net
profit declined 96% YoY to | 1.8 crore. However, the results were above
our respective estimates of | 459 crore and net loss of | 12 crore in
Q3FY11 on account of higher than expected realisation and stock
adjustment of | 32 crore. OPM improved by 1018 bps QoQ (985 bps dip
YoY) to 11.4% (our estimate: 8.2%) while blended EBITDA per tonne
increased significantly to ~| 427 per tonne in the quarter (our estimate: |
174 per tonne) from | 44 per tonne in Q2FY11. Going forward, we expect
realisations to improve on account of increasing demand and better
utilisation rates. However, increase in coal and freight cost would keep
margins under pressure.
Blended volume up ~17% YoY (~6% QoQ), realisation up ~7% QoQ
Grey cement sales volume jumped ~17% YoY (4.5% QoQ) to 1.18
MT. White cement sales volume increased ~17% YoY (21.1% QoQ)
to 0.86 LT. Grey cement realisation declined ~12% YoY (up 3.5%
QoQ) to | 2977 per tonne. On the other hand, realisation of white
cement increased sharply by 17.2% YoY (6.2% QoQ) to | 14,073 per
tonne.
EBITDA per tonne improves QoQ to ~| 427 per tonne
EBITDA per tonne increased significantly on a sequential basis to |
427 per tonne on account of a sequential improvement in realisation
and stock adjustment of | 32 crore. Total cost declined 4% QoQ
(increased 6% YoY) to | 3307 per tonne while the blended realisation
improved ~7% QoQ (~6% YoY decline) to | 3734 per tonne. Thus,
the EBITDA margin has improved by 1018 bps QoQ to 11.4%.
Valuation
At the CMP of | 137, the stock is trading at 15.3x and 10.1x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 7.0x
and 6.2x its FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $58 and $49 its FY12E and FY13E capacities,
respectively. We are assigning an ADD rating to the stock with a revised
target price of | 148 per share. At the target price, the stock is trading at
$60 per tonne at its FY12E blended capacity (Grey and White) of 7.9 MTPA.
Net sales rise 10% YoY and 13% QoQ on better sales volume
Net sales increased ~10% YoY (13% QoQ) to | 473.3 crore in Q3FY11 on
account of better than expected growth in white cement realisation and
blended sales volume. Grey cement sales increased ~3.3% YoY (8.2%
QoQ) to | 352 crore on the back of ~17% YoY (4.5% QoQ) growth in sales
volume to 1.18 MT, which negated the impact of 11.6% YoY decline (up
3.5% QoQ) in realisation of | 2977 per tonne. Increase in grey cement
volumes (YoY) was on account of capacity expansion of 3 MTPA in
Karnataka. On the other hand, white cement sales (including wall putty)
increased ~37% YoY (~29% QoQ) to | 121.7 crore on the back of a ~17%
YoY (~21% QoQ) increase in white cement sales volume to 0.86 LMT and
17.2% YoY (6.2% QoQ) increase in white cement realisation to | 14,073
per tonne.
EBITDA margin dips 985 bps YoY while it jumps 1018 bps QoQ
The decline in EBITDA margin by 985 bps YoY to 11.4% was mainly on
account of 6% YoY decline in blended realisation to | 3734 and ~6% YoY
growth in total cost per tonne to | 3307. As a result, the blended EBITDA
per tonne reported a decline of 49% YoY to ~| 427 per tonne. However,
on a sequential basis, the EBITDA per tonne increased significantly on the
back of growth in blended realisation by 7% supported by a 4% drop in
total cost per tonne for the same period. Sequentially, the margin
expanded by 1018 bps mainly due to a better-than-expected performance
by the white cement segment.
As a major cost contributor, power & fuel cost increased 37% YoY (28%
QoQ) to | 1178 per tonne on account of an increase in petcoke prices. The
freight cost increased 2% QoQ to | 861 per tonne on account of an
increase in diesel prices and increase in proportion of road transportation.
The raw material cost increased by 18% YoY (13% QoQ) to | 569.3 per
tonne on account of an increase in costs of basic raw materials like slag
and fly ash. The employee cost increased by 11% YoY (declined by 10%
QoQ) to | 230 per tonne. Other expenditure declined by 10% YoY to |
722.1 crore while it remained flat on a sequential basis due to lower
expenditure on maintenance.
Net profit nosedive 96% YoY but recovers from QoQ loss
JK Cement reported a net profit of | 1.8 crore as against a net loss of ~|
21 crore reported in Q2FY11 on the back of the better performance of the
white cement segment and stock adjustment of | 32 crore. However, net
profit declined 96% YoY on lower realisation and higher depreciation and
interest charges. The depreciation and interest costs surged 12% YoY (3%
QoQ) and 26% YoY (6% QoQ) to | 28 crore and | 27 crore, respectively.
Capex plan
The company is increasing its grey cement capacity by 2.5 MTPA through
the brownfield expansion at Mangrol, Rajasthan. This is expected to get
commissioned by Q4FY13 and would increase the grey cement capacity to
10 MTPA by FY13.
Valuations
At the CMP of | 137, the stock is trading at 15.3x and 10.1x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 7.0x
and 6.2x its FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $58 and $49 its FY12E and FY13E capacities,
respectively. We have assigned an ADD rating to the stock with a revised
target price of | 148 per share. At the target price, the stock is trading at
$60 per tonne at its FY12E blended capacity (Grey and White) of 7.9 MTPA.
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