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Revenue, margins under strain
Lower cement prices burden the bottom line
JK Cement reported a net loss of INR294mn as compared to our
estimates of INR31mn due to lower than expected revenue. JKCEM
posted a 2.7% YoY decline in the revenues mainly due to drop in
realizations. EBITDA margins contracted by 2,550bps YoY to 1.3% due
to the negative EBITDA from the Karnataka unit. Due to lower
revenues and margins, EBITDA weakened by 95.4% YoY to INR53mn.
Grey cement margins decline, cost pressures mount
Grey cement volumes increased 18.1% YoY to 1.13 mn tonne on the
back of capacity additions. The realizations for the grey cement
business, however, fell 21% YoY and 15.2% QoQ to 2,873 per tonne
due to higher sales in the low priced South Indian market and an
overall decline in cement prices. White cement volumes stood at
71,400 tonnes representing an increase of 5.8% YoY and 3.5% QoQ.
The white cement realizations improved 8% YoY and 2.4% QoQ to
INR13,301/tonne due to higher proportion of wall putty in the white
cement sales volume.
The EBITDA per tonne for grey cement stood at ~INR112 as compared
to INR983 in Q2FY10. The white cement EBITDA stood at
~INR2,494/tonne as compared to INR 2,851/tonne in Q2FY10. The
blended EBITDA for Q2FY10 was INR44/tonne as compared to
INR1,129/tonne in Q2FY10. The decline in realizations coupled with
higher cost pressures have put stress on the EBITDA margins of the
company which is likely to reduce going ahead.
Maintain Buy with a target price of INR220
At CMP of INR 165, the stock is trading at EV/tonne of ~USD51 on
FY12 capacity. The stock is trading at a steep discount to its own
replacement cost. Furthermore, we expect a sharp improvement in the
profitability of the company in H2FY11 due to incisive increase in
cement prices. We believe that the stable cash from white cement
business and a strong volume growth in grey cement will enable the
company to successfully sail through tough times
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