Motilal Oswal Securities Reports on JK Cement

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 Beat in estimates..: JK Cement’s (JKCE) 2QFY15 revenue grew 32.6% YoY (-11%

QoQ) to INR8.3b (v/s est. of INR7.4b). EBITDA stood at INR876m (v/s est. of

INR788m), +1.3x YoY (-11% QoQ), translating into margin of 10.6% (in-line). Lower

depreciation and tax writeback (effective tax rate stood negative in 2Q) boosted

PAT further to INR323m (v/s a loss of INR215m in 2QFY14).

 ...driven by expansion-led volume strengths: Grey cement volume grew 22% YoY

(flat QoQ) to 1.55mt (v/s est. of 1.4mt). White cement (incl. putty) volume stood at

0.23mt (+16% YoY) with better growth in putty (+34% YoY). Commencement of

3mt of brownfield expansion at Rajasthan in 2QFY15 led to 24% YoY volume

growth in north operations, while south volume was up 17% YoY (on a low base).

 EBITDA plunges QoQ with decline in north prices and cost push: Grey cement

realizations at north were down INR12/bag QoQ (-6%), while south posted an

increase of INR22/bag QoQ (+11%), translating into EBITDA of INR196/t (v/s a loss

in 2QFY14, -INR131/t QoQ). Stable realizations-led white cement profitability was

flat QoQ (2Q margins at 24.8%). Blended costs were up (+3% QoQ, +4% YoY) led by

an increase in pet coke prices and higher other expenses (increase in

advertisement spending and some one-offs), albeit offset by positive operating

leverage due to higher volume.

 Ongoing capex cycle largely concluded: Rajasthan brownfield expansion (3mt) is

ramping up steadily with commencement of grinding and clinker operations in

June and September respectively. UAE plant is operating at ~46% with 2HFY15

likely to reach ~60% (cash break-even for FY15). Ongoing capex cycle is largely

over with 7mw of WHR (of the total 10mw) and railway siding at new plants likely

to get operational by Dec 2014. Putty plant of 0.2mt (INR1-1.25b) at Madhya

Pradesh is under plan over FY15-16 (to be completed by March 2016).

 Upgrade EPS, maintain Buy: Raise FY15E/16E EPS by 11%/23% to INR22.3/58 to

factor (a) stronger volume growth (24%/13% in FY15E/16E v/s 15%/10% earlier),

(b) marginal increase in energy cost, (c) lower tax and depreciation/interest run-
rate (guided lower than earlier estimate). The stock trades at 7x EV/EBITDA and

USD95/t (blended). Maintain Buy with a target price of INR777 (USD80/t for Grey

cement capacity and 6x FY16E white cement EBITDA).