JK Cement - Subdued results; new projects encouraging; Buy
Key takeaways
Muted grey cement performance. JK Cement’s revenues dropped 11% yoy, led by 12% yoy drop in aggregate volumes (16% in grey cement) even as realizations rose 2% yoy. Blended EBITDA per ton, at `635 (`375 in grey: `580 in the South;`290 in the North), dipped 33% yoy due to double-digit cost inflation in raw material, stores & spares and freight. Also, drop in volumes yoy led to a 35% surge in fixed cost per ton. The drop in pet-coke prices was partially offset by the higher cost of grid power. For FY14, management expects volumes to remain flat or grow marginally.
Robust growth in white cement. White cement and wall putty volumes in 1Q grew 9% and 38%, respectively, yoy; the company aims at a further 15% and 25% yoy growth in these segments in FY14. We believe this is achievable, given the company’s strong brand equity and market share (40%) and ongoing capacity expansions. EBITDA per ton came in at `2,747 (versus `2,745 a year ago and `3,077 the previous quarter). Realisation per ton rose 4% yoy (down 1% qoq), to `10,890. The business contributed 51% to overall EBITDA. The planned 0.6m-ton plant in Fujairah, UAE, is on track for completion by Mar’14; civil construction is in progress.
Rajasthan project on track. The 3m-ton grey cement project (split grinding units of 1.5 tons each in Haryana and Mangrol, Rajasthan) is on track. Grinding unit is likely to come up by Jun’14 and clinker by Sep’14. We expect high utilisation rates to continue in the plant’s core markets of North, Central regions.
Our take. 1QFY14 performance was in line with estimates. Based on the quarter trend, we have toned down our FY14-15 earnings. Our SOTP based target price of `290 is based on 7x Jun’14e EV/EBITDA (30% discount to our target multiple for large-cap cement companies) and value of investment in subsidiary. We maintain Buy on this multi-region, multi-product play. At fair value of the standalone entity, the stock would trade at PE of 9x and EV per ton of US$80. Risk. Drop in cement prices.
| Thanks & Regards Anand Rathi Institutional Research |
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