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

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Growth momentum to continue…
• JK Cement in Q2FY15 exceeded our volume guidance of 1.61 MT vs.
actual sales volumes of 1.77 MT. During the current quarter, revenues
were up 32.6% YoY to | 827.9 crore led by volume (blended) and
realisation growth of 21.0% YoY (1.77 MT) and 9.6% YoY, respectively
• While grey cement realisation increased 15.4%YoY during the quarter
to | 3,787/tonne white cement realisation grew 5.0 YoY to
| 11,304/tonne. On the other hand, sales volume of grey and white both
improved 21.4% YoY (1.55 MT) and 18.2% YoY (0.23 MT), respectively
• Margins remained under pressure due to high raw material costs.
Blended EBITDA/tonne of | 494/tonne remained lower than our
estimates (| 603/tonne). However, better-than-expected volumes drove
sales leading to higher-than expected net profit during the quarter
Commissioning of new capacity to drive revenue growth
The company has expanded its cement capacity by 3.0 MT in North India,
which operated at ~48% during Q2FY15. Further, JK Cement also
commissioned the grey cum white cement plant with an installed capacity of
0.6 MTPA (white cement) and 1.02 MTPA (grey cement) in Fujairah (UAE),
which would start providing the full benefit from H2FY15E onwards. With
this, we expect growth momentum to continue and expect revenue CAGR of
over 25.9% in FY14-17E.
Demand environment in south to improve; Karnataka least impacted
Total 40% of the company’s current capacity is in Karnataka (i.e. 3.0 MT),
southern region. South India is currently facing a demand-supply mismatch
situation with capacity utilisation of ~55-60% only. The major problem that
seemed to be affecting South India was political uncertainty in Andhra
Pradesh (AP) over the Telangana issue, which was a major roadblock
hampering government projects. This also led to a price correction in
Karnataka. With the AP issue now being resolved, we expect the southern
region to witness an improvement in demand leading to better realisations,
which will be beneficial for the company.
UAE plant to break even by H2FY15
The UAE unit is fully functional and operating at a utilisation of around 46%,
which is likely to go up to 60% in H2FY15E. This plant incurred an EBITDA
loss of around | 5 crore in Q1FY15 but achieved break even at the EBITDA
level in Q2FY15. The management expects profitability to improve and to
break even at the cash level by H2FY15.
Earnings growth momentum to continue; maintain BUY
Given the upcoming new capacity from H2FY15E, we expect growth in
profitability to remain healthy, going forward. Further, with healthy operating
cash flow, we expect the company’s debt level to peak out in FY15E. At the
CMP of | 630, the stock is trading at 8.6x its FY16E and 6.3x its FY17E
EV/EBITDA, respectively. On an EV/tonne basis, the stock is trading at $89 on
FY17E capacity of 11.7 MT. This leaves scope for appreciation over the
longer term despite the sharp rally in stock prices over the last three months.
Hence, we continue to remain positive on the stock and maintain our BUY
recommendation on the stock with a revised target price of | 735/share (i.e.
at 7.0x FY17E EV/EBITDA, $100/tonne on FY17E capacity (11.7 MT).


LINK
http://content.icicidirect.com/mailimages/IDirect_JKCement_Q2FY15.pdf