Grey cement – healthy growth Jun’20 onwards: During 1QFY21, while COVID impact drove sales loss in April/May, JKCE recorded robust growth in June due to demand recovery and capacity ramp-up. This moderated the overall 1QFY21 volume decline to 19% YoY (1.6mn MT). This growth continues in 2QFY21. NSR firmed up 3% QoQ (flat YoY) in 1Q, benefitting from healthy pricing across north, west, and south markets. Lower fuel prices and a sharp cut in discretionary spending flattened opex YoY, despite lower volumes. Thus, unitary EBITDA stood stable at healthy ~Rs 990/MT, in our view, implying segmental EBITDA fell ~20% YoY.
White/putty sales hit hard in 1Q, recovery seen: Sales in 1Q fell sharply (down 48% YoY to 0.18mn MT) on poor demand throughout. NSR rose 3% YoY (down 1% QoQ). In our view, segmental unitary opex inflated 5% YoY, on sharp volume decline, leading to flattish unitary EBITDA YoY (~Rs 3,350/MT). Subsequently, segmental EBITDA fell ~50% YoY. JKCE indicated that segmental sales have flattened YoY in 2Q so far, indicating healthy recovery. Even, the UAE operation is seeing similar trends.
Expansion updates: In Oct’20, JKCE’s 0.3mn MT putty expansion in Katni will become operational. By Dec’20, its pending 0.7mn MT SGU in Gujarat and WHRS in Rajasthan will get commissioned. The clinker line-3 expansion is expected in 2QFY22E. The company is also investing in land and mining rights for Panna expansion. However, JKCE is yet to finalize its FY22 capex spends (towards Panna) amid COVID uncertainties.
Outlook: We remain bullish on the company, owing to healthy traction across both business segments. In grey cement, it expanded capacity in lucrative markets along with margin expansion tailwinds. In white/putty, it is steadily increasing capacity, and its leadership presence continues to support robust margin. We have increased FY21/22/23E EBITDA by 9/3/3% each, factoring in higher volumes. We maintain BUY with a revised target price of Rs 1,635 (10x Jun’22E consolidated EBITDA).
The full version of the analysis including charts can be found in the attached PDF file: