JK Cements - Augmenting Capacity To Support Deeper Market Reach; Retain 'Buy': Axis Securities

Axis Securities Report

In FY23, JK Cement Ltd. registered a robust cement sales volume of 16.24 million tones per annum, up 16% YoY from 14.02 mtpa in FY22. Grey and White Cement volume grew by 17% and 8% respectively.

The growth was driven by a superior demand environment in both trade as well as non-trade segments and new capacity addition during the year. 

The company’s Ebitda margins declined to 13.4% in FY23 from 18.6% in FY22, recording a decline of 570 basis points. This was primarily due to the overall increase in costs, which rose 12% YoY on a per-tonne basis to Rs 5,177.

The higher costs were due to increased energy costs, which were up 33% per tonne YOY. In response, the company took several measures to improve efficiency and leveraged input cost levers across the chain to reduce costs.

The company’s blended realisation improved by 5% in FY23 to Rs 5,979/tonne. Its operating cash flow also improved by 57% toRs 1,377 crore in FY23 owing to better management of working capital.

Outlook and recommendation

Benefiting from a strong presence in North India's pivotal markets and a recent expansion in the growth oriented central region, the company is poised to sustain its growth trajectory.

With the government's emphasis on infrastructure and affordable housing, coupled with rural demand resurgence and new unit capacity ramp-up, JK Cement is anticipated to enhance its market share and achieve exceptional industry performance in the foreseeable future.

We expect the company to grow its volume/revenue/Ebitda/adjusted profit after tax at a compound annual growth rate of 13%/16%/36%62/% over FY23-FY25E.

We JK Cements at 13 times FY25E enterprise /Ebitda and assign a 'Buy' rating to the company with a target price of Rs 3,560/share, implying an upside potential of 12% from the current market price.

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