Growth momentum to continue… • JK Cement :: ICICI Securities, report link

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Motilal Oswal Securities Reports on JK Cement

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One of the most efficient players in cement midcap space-- JK Lakshmi Cement :: ICICI Securities, PDF link

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JK Cement - Q3FY14 Result update - Result better than estimates, challenges continue : Centrum

Rating: Hold; Target Price: Rs185; CMP: Rs181; Upside: 2%



Result better than estimates, challenges continue



We maintain Hold rating on JK Cement with a price target of Rs185 due
to expensive valuations and bleak cement demand scenario putting
pressure on the margins in the grey cement business. Going forward,
the company is set to benefit from a) expansion in white cement
capacity of 0.6mt in UAE by March ’14 and b) expansion of grey cement
capacity of 3mt in the North region by Sept ’14. But, we remain
concerned on the deterioration of earnings quality of cement companies
led by lower demand which has put pressure on realization and impacted
their operational performance. In the quarter, profit was above our
estimates led by higher sales volume of grey cement, lower interest
cost and higher other income.

$ Lower profit from grey cement segment impacts performance: Revenue
of the company declined 1.8% YoY to Rs6.7bn led by 5.8% YoY decline in
grey cement revenue. Revenue from white cement was up 7.1% YoY during
the quarter. Led by sharp decline in operating profit of grey cement
(down 77.4% YoY), operating profit declined 45.3% YoY to Rs731mn.
Adjusted profit declined 80.3% YoY to Rs112mn.

$ Lower realization and higher operating costs impact grey cement’s
performance: Revenue from grey cement segment declined 5.8% YoY led by
10.1% YoY drop in realization. Sales volume of grey cement was up 4.8%
YoY. Led by sharp decline in realization, EBITDA of this segment
declined 77.4% YoY to Rs177mn. Operating cost for grey cement was up
3.4% YoY led by increase in energy and freight costs. OPM of grey
cement declined 12.5pp YoY to 4%.

$ Better performance continues for white cement segment: Revenue from
white cement segment increased 7.1% YoY led by 12.3% YoY increase in
sales volume. Sales volume of white cement increased 5.5% YoY and that
of Putty 23.4% YoY. Realization of this segment was down 4.6% YoY led
by decline in realization of Putty (due to pressure from local
players, as suggested by the management). EBITDA from this segment
increased 5.2% YoY. OPM declined 48bps YoY to 25.7% mainly due to a
fall in realization.

$ Valuation & Risks: The stock trades at 6.4x/4.8x FY15E/FY16E
EV/EBITDA. The near-term scenario for the grey cement business
continues to remain challenging and there has been steep volatility in
cement prices due to lacklustre demand. We maintain Hold rating with a
price target of Rs185, possible upside of 2%. Key upside risks could
be a) better cement realization and b) higher than expected sales
volume. Key downside risks could be a) lower sales volume and
continued lower utilization rate of the Karnataka plant  b) lower than
expected realization of grey cement and c) delay in commissioning of
white cement capacity.



Thanks & Regards

--

JK Cement - Subdued results; new projects encouraging; Buy (Anand Rathi Institutional Research)

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.

Click here to access the report

Thanks & Regards Anand Rathi Institutional Research

JK Cement - Management Interaction - Centrum

Management Interaction Takeaways

JK Cement

Buy

Target Price: Rs465

CMP: Rs333

Upside: 39.6%

We spoke with the management of JK Cements to get an insight into future prospects and volume trend from its South and North plants. Key takeaways from our discussion are given below:-

JK Cement -Value Pick.-- Anand Rathi

Closing 304          Reco: Buy        Expected Value 404            Nifty Level 5888

  

• Multi product and multi region play

One of the largest cement manufacturers in North India and second largest producer of white cement in India.

Known for brands like – JK Cement, Sarvashaktiman, JK Super.

• Expansion plans to be the trigger going forward

Grey cement – The company plans to augment its grinding capacity by 3mn tons at Haryana and Rajasthan.

White cement – Plans to set up 0.6mn tons plant in UAE  for Middle East markets.

• Volume and Price increase are the important parameters for the performance

The company has been enjoying good volume growth compared to its peers and price increase is also helping on the realizations front.

• Consistent dividend payer

20% payout ratio.

Valuations

At our target price of 404 the stock would trade at 5.8x FY14E EV/EBITDA and at a PE of 9x in the same period. With expansion plans on track and added advantage of white cement growth will be beneficial for the company’s growth potential going forward

Thanks & Regards

-- 

Stellar performance, maintain Buy JK Cement :: Centrum

Stellar performance, maintain Buy
JK Cement’s Q2FY13 result was above estimates with EBITDA at Rs1.3bn (vs.
est. Rs1.2bn), EBITDA margin at 18.2% (vs. est. 17.2%) and profit at Rs541mn
(vs. est. Rs410mn). Higher profit was largely due to a) higher sales of white
cement at 0.10mt (vs. est. 0.09mt), b) grey cement realization at
Rs3,973/tonne (vs. est. Rs3,939/tonne) and c) 22.5% QoQ decline in interest
cost to Rs290mn. Going forward, with higher sales from South plants in the
current year, the management believes that grey cement sales volume could
increase by 8-10% in FY13E. Last year, sales volume from this plant was ~44%
which is expected to improve to ~70% in FY13E. The expansion plan of 3mt
(split grinding units of 1.5mt each in Haryana and Rajasthan) is on track and
the management expects these plants to get commissioned by end-FY14E.
We believe that higher grey and white cement sales volume will lead to
improved earnings for the company and expect EPS to grow by 53.1% YoY to
Rs39.4 in FY13E. EPS of the company is expected to grow at a CAGR of 24.7%
between FY12-FY15E. Higher earnings will lead to improvement in RoE to
16.9% in FY13E against 12.3% in FY12. JK Cement is our top-pick among midcaps
and we maintain Buy on the stock with a price target of Rs354, upside of
30.5% from the CMP.
Better performance from both segments helps to post better results:
Revenue of the company increased 39.3% YoY to Rs7.1bn led by 40.9% YoY
growth in grey cement revenue and 34.6% YoY growth in revenue of white
cement. EBITDA increased 114.9% YoY to Rs1.3bn and EBITDA margin
expended 6.4pp YoY to 18.2%. EBITDA margin expansion was primarily due to
7.9pp YoY improvement in op. margin of grey cement. Adj profit of the
company increased 15.2x YoY to Rs541mn.
Higher realization and sales volume lead to stellar performance from grey
cement: Led by 17.8% YoY sales volume growth and 19.6% YoY realization
growth, revenue from grey segment increased 40.9% YoY to Rs5.4bn. Higher
realization and sales volume led to 189.2% YoY growth in operating profit of this
segment to Rs839mn and EBITDA margin expanded 7.9pp YoY to 15.4%.
Operating cost of grey cement increased 9.3% YoY to Rs3,360/tonne primarily
due to an increase in raw material, energy and freight costs. EBITDA/tonne of
grey cement increased 145.4% YoY to Rs614/tonne.

JK Cement Buy Target Price: Rs204 ::Centrum

Stellar performance, maintain Buy -- JK Cement’:: Centrum

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Stellar performance, maintain Buy
JK Cement’s Q3FY12 PAT at Rs435mn was significantly above ours (est.:
Rs304mn) and Bloomberg consensus estimates of Rs204mn primarily due to
steep improvement in realization of grey cement (Rs3,757/tonne vs.
Rs2,927/tonne in Q3FY11 and Rs3,323/tonne). EBITDA increased 120.3% YoY
(and 100% QoQ) to Rs1.2bn and EBITDA margin improved 795bps YoY (and
773bps QoQ) to 19.4%. Cement prices continue to remain firm in the key
markets of the company (South and North regions) and hence, grey cement
realization increased Rs820/tonne YoY (up 27.9%) and Rs434/tonne QoQ (up
13% QoQ) to Rs3,757/tonne. We have factored in higher cement prices for the
company due to prolonged sustainability of cement price at higher levels in
the South region despite industry utilization rate of 60-65% over the past one
year contrary to our expectation of a decline in cement prices due to lower
utilization rate. On the back of higher realization, adjusted PAT of the
company increased 9.3x YoY to Rs971mn (88% of Bloomberg consensus
estimates for FY12E) in 9MFY12E and hence, we believe that consensus
estimates of the company would see a significant revision. We have revised
our EPS estimates by 39.5%/38.1%/2.6% for FY12E/FY13E/FY14E to
Rs21.9/Rs24.8/Rs28 respectively considering higher realization of grey
cement. We maintain Buy on the stock with a revised price target of Rs204
(earlier: Rs167), an upside of 50.9% from CMP.
􀂁 Improvement in grey cement realization and sales volume lead to higher
revenues….: Revenue of the company increased 29.9% YoY to Rs6.2bn led by
27.9% YoY growth in grey cement realization to Rs3,757/tonne and 18.7% YoY
growth in white cement realization to Rs15,537/tonne. Grey cement sales
volume grew 6.5% YoY to 1.27mt (including Clinker sales of 0.04mt).
􀂁 ….. Leading to significant increase in EBITDA and profits: Driven by
improvement in realization of both grey and white cement, EBITDA of the
company increased 120.3% YoY (and 100% QoQ) to Rs1.2bn. EBITDA margin
improved 795bps YoY (and 773bps QoQ) to 19.4%. Profit of the company
increased 23.8% YoY (and 12.2% QoQ) to Rs435mn.

Buy JK Cement ; Target : Rs 161 :: ICICI Securities, (pdf link)

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http://content.icicidirect.com/mailimages/ICICIdirect_JKCement_Q3FY12.pdf


H i g h e r   r e a l i s a t i o n   l e a d s   t o   s p u r t   i n   m a r g i n s …
JK  Cement’s Q3FY12  net  sales  of  |  615  crore,  EBITDA  of  |  119  crore  and
PAT of | 43.5 crore were above our respective estimates of | 579 crore,
| 92 crore and | 24 crore. This was primarily on account of higher than
expected blended realisation, which increased ~14% QoQ to
| 4654/tonne (our estimate: | 4330/tonne). The EBITDA margin of 19.4%
(our estimate: 15.8%) increased 795  bps YoY as higher realisations
negated the increase in costs. On a per tonne basis, EBITDA increased
significantly to | 902/tonne during  the quarter against | 427/tonne in
Q3FY11. Blended volumes picked up during the quarter as demand
improved post monsoon. Going forward, we expect volumes to increase
at ~5% CAGR during FY11-13E to 5.96 MT in FY13E. Blended EBITDA is
expected to improve to | 817/tonne in FY12E and | 820/tonne in FY13E
against | 484/tonne in FY11.
ƒ Blended cement volume up ~4% YoY, realisation up ~25% YoY
Blended cement sales volumes (grey and white) increased ~4%
YoY (~6% QoQ) to 1.32 MT on account of a pick-up in construction
activities post monsoons. Blended cement realisation increased
~25% YoY (~14% QoQ) to |  4654/tonne. The blended EBITDA
increased to | 902/tonne in Q3FY12 as against | 427/tonne in
Q3FY11 and | 477/tonne in Q2FY11. The improvement in margin
was primarily on account of a rise in realisations, which negated the
impact of an increase in input costs, which increased ~ 13% YoY (~
4% QoQ), to | 3752/tonne.
V a l u a t i o n
At the CMP of | 137, the stock is trading at 6.6x and 6.1x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 4.4x
and 3.8x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $50 at its FY13E capacity. We have valued the
FY13E blended capacity of 7.9 MT at $55/tonne, which is ~60% discount
to the current replacement cost of $135/tonne. We have maintained our
BUY rating with a revised target price of | 161/share.

Buy JK Cement; Target : Rs 123:: ICICI Securities

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L o w e r   r e a l i s a t i o n   d e n t s   m a r g i n …
JK Cement’s Q2FY12 results came  in line with our expectations. The
company reported net sales of | 511 crore, EBITDA of | 60 crore and PAT
of | 3.6 crore against our respective estimates of | 502 crore, | 57 crore
and | 3 crore. Increase in sales volume and realisations of both grey and
white cement helped topline grow  at ~22% YoY. The EBITDA margin
came at 11.6% (our estimate: 11.5%) increasing 1040 bps YoY as higher
realisations negated the increase in costs. The margin declined 961 bps
QoQ due to a sequential decline in realisations coupled with increase in
costs. Grey cement EBITDA increased significantly to | 250/tonne during
the quarter against a loss of | 112/tonne in Q2FY11. Going forward, we
expect grey cement volumes to remain muted and grow 2% in FY12E but
they are expected to improve in FY13E by 7% in anticipation of increase
in demand. Blended EBITDA is expected to improve to | 693/tonne in
FY12E and | 726/tonne in FY13E against | 484/tonne in FY11.
ƒ Blended cement volume up ~4% YoY, realisation up ~17% YoY
Blended cement sales volumes (grey and white) increased ~4%
YoY to 1.25 MT. However, the volume declined ~12% QoQ due to
muted demand on account of a slowdown in construction activities.
Blended cement realisation increased ~17% YoY to | 4092/tonne
but declined ~4% QoQ. The blended EBITDA increased to |
477/tonne in Q2FY12 as against | 44/tonne in Q2FY11 on account of
a rise in realisations, which negated the impact of an increase in
input costs. However, it declined ~47% QoQ due to low realisations
and higher costs.

V a l u a t i o n
At the CMP of | 99, the stock is trading at 6.3x and 5.4x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 4.5x
and 3.7x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $49 its FY13E capacity of 7.5 MT. We have valued
the blended cement capacity at $50/tonne its FY13E capacity, which is
~60% discount to the current replacement cost of $130/tonne. We have
maintained our target price of | 123/share with a BUY rating.

Hold JK Cement ; Target : Rs 123:: ICICI Securities

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R e a l i s a t i o n   g a i n   l e a d s   t o   s p u r t   i n   e a r n i n g s…
JK Cement’s Q1FY12 net sales of | 605 crore and net profit of | 49.9 crore
were ahead of our respective estimates of | 564 crore and | 22 crore. This
was on account of higher-than-expected blended realisation, which
increased ~10% YoY (~5% QoQ) to | 4273/tonne against our estimate of
| 3930/tonne. Blended EBITDA improved ~36% YoY (~30% QoQ) to |
908/tonne (our estimate: | 625/tonne) due to a significant rise in
realisation. Grey cement volumes  remained muted in Q1FY12 as it
increased ~4% YoY and declined ~13% QoQ. Going forward, we expect
the blended sales volume to increase ~6% YoY in FY12E and ~11% YoY
in FY13E. Also, the company is setting up a 3.5 MT brownfield expansion
at Mangrol, Rajasthan, which would take the company’s grey cement
capacity to 11 MTPA by FY14E.
ƒ Blended cement volume up ~5% YoY, realisation up ~10% YoY
Grey cement sales volumes increased ~4% YoY to 1.33 MT but
declined ~13% QoQ. Grey cement realisation improved ~8% YoY
(~5% QoQ) to | 3650/tonne due to significant price hikes across its
markets during March-April 2011. White cement sales volume
increased ~26% YoY (declined ~17% QoQ) to 0.09 lakh tonnes
while white cement realisation improved ~6% YoY (~9% QoQ).
ƒ Blended EBITDA improves ~36% YoY (~30% QoQ) to | 908/tonne
The blended EBITDA has improved significantly by ~36% YoY
(~30% QoQ) to | 908/tonne on the back of a sharp increase in
realisations. Thus, the OPM has improved by 404 bps YoY (398 bps
QoQ) to 21.3%.
V a l u a t i o n
At the CMP of | 113, the stock is trading at 9.5x and 7.3x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 5.8x
and 6.3x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $51 and $57 its FY12E and FY13E capacities,
respectively. We have valued the stock at $75/tonne (~40% discount to
the replacement cost) at its FY13E blended capacity of 7.5 MT. We have
assigned a HOLD rating to the stock with a target price of | 123/share.

Add JK Cement; Target : Rs148:: ICICI Securities,

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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.

JK Cement Q3FY11 -Margins improve, maintain Buy; Centrum

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JK Cement’s (JKCem) Q3 results were below estimates
with net sales at Rs 4.73 bn (6.2% below our estimates of
Rs 5.05 bn), EBITDA at Rs 541 mn (18.9% below our
estimates of Rs 667 mn) and adjusted PAT at Rs 18 mn
(83.5% below our estimates of Rs 111 mn). EBITDA
margin at 11.4% was 178 bps lower than our estimates of
13.2%. We have downgraded EPS estimates by
51.6%/28.7%/10.3% for FY11E/FY12E/FY13E factoring
into lower despatches growth in Southern region due to
supply discipline by manufacturers. Consequently, our
target price has been revised downwards to Rs179
against Rs 192 earlier. We maintain Buy rating on the
stock.

JK Cement: Grey eminence: Elara

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Grey eminence
Grey cement capacity up 67%, to prop up earnings
JK Cement Limited (JKCEM) has increased its grey cement capacity by
67% from 4.5mn tonnes to 7.5mntonnes, through a greenfield
expansion in Karnataka. The capacity expansion is likely to spur the
volume growth in FY11 as well as in FY12. On account of the capacity
addition, we expect JKCEM’s grey cement volume to go up at a CAGR
of 16.8%, cushioning earnings of the company from a decline in
margins.