JK Cement rating – Reduce: Realisations impacted Q4 performance

After a major re-rating and outperformance over the previous two years, additional upside from right here seems restricted. Downgrade to Scale back (from ADD).

JKCE’s Q4FY21 adjusted Ebitda was 14% beneath our estimate led by decrease realisation as a consequence of decrease commerce gross sales and better clinker volumes. The ramp-up at newly commissioned 4.2-mtpa capability is driving progress and market share acquire. Enlargement plans in Central India are on monitor and supply robust medium to long-term progress visibility. After a major re-rating and outperformance over the previous two years, additional upside from right here seems restricted. Downgrade to Scale back (from ADD).

Q4FY21—Ebitda miss on weaker gray cement realisations
JKCE reported revenues of Rs 20.5 bn (+41% y-o-y, +17% q-o-q), adjusted Ebitda of Rs 4.8 bn (+46% y-o-y, +7% q-o-q) and internet revenue of Rs 634 mn (+27,959% y-o-y-, 73% q-o-q) (adjusted for Rs 2.3 bn of outstanding loss). White cement and putty volumes rebounded to 0.39 mn (+29% y-o-y, -5% q-o-q) whereas gray cement volumes grew to three.5 mn tons (+48% y-o-y, +27% q-o-q). Blended realisation fell to Rs 5,270/ton (-4% y-o-y, -5% q-o-q), decrease than our estimate, as a consequence of elevated non-trade gross sales and better clinker gross sales. Prices declined to Rs 4,042/ton (-5% y-o-y, -2% q-o-q). Adjusted Ebitda got here at Rs 1,228/ton (flat y-o-y, -13% q-o-q). For FY2021, Ebitda elevated to Rs 15.5 bn (+31%) (or Rs 1,334/ton, +10%) on larger volumes (+19%), decrease prices (-6%), offset by decrease costs (-3%).

Central India growth supplies medium-term progress visibility
JKCE has accomplished its whole 4.2-mtpa capability growth mission, which ought to drive quantity progress from FY2021-23e. Nimbahera-line 3 upgradation work is predicted to finish in Q2FY22. Additional, JKCE has began work on establishing a greenfield 3.5-4 mtpa built-in cement capability at Panna, Madhya Pradesh for a complete capex of Rs 29.7 bn and expects to fee by Q1FY24e. Elevated diversification to Central India, engaging regional costs and demand prospects make the growth mission value-accretive. Internet debt fell 38% yoy in FY2021 to 0.9X internet debt/Ebitda. Internet debt/Ebitda stays <1X over FY2022-24E regardless of progress capex.

We revise FV to Rs 2,450 (from Rs 2,300)
We reduce our EPS estimates by 4%/2% for FY2022e/23e primarily led by decrease realisations. Our FV will increase to Rs 2,450/share (from Rs 2,300/share) at 8.5X EV/Ebitda as we roll over to June 2023e. The inventory has been the perfect performing cement inventory prior to now two years. Nonetheless, we now imagine the positives – (i) market share acquire as a consequence of important capability addition over FY2020-21, (ii) engaging progress prospects and (iii) improved stability sheet are properly priced in. At 10X EV/Ebitda FY2023E (adjusted for CWIP), we see restricted upside and downgrade the inventory to Scale back.