Central India project offers growth visibility; TP up to Rs 2,700; ‘Reduce’ maintained
JKCE’s Q1FY22 standalone Ebitda was 14% above our estimate led by lower costs. Cost control was impressive while Covid-19-led volume loss and impact on white cement segment in the quarter has likely peaked. The ramp-up at 4.2-mtpa capacity is driving growth and cost efficiency in H2FY22e. The Central India expansion project is on track to commission by FY2023e, providing growth visibility. We increase our FV to Rs 2,700 on rollover and maintain Reduce.
Ebitda beat on higher prices and lower costs: JKCE reported standalone revenues of Rs 16.3 bn (+69% y-o-y, -20% q-o-q), Ebitda of Rs 3.9 bn (+85% y-o-y,-16% q-o-q) and adjusted net-income of Rs 2.0 bn (+168% y-o-y, -29% q-o-q), against our estimate of Rs 16.3 bn, Rs 3.5 bn and Rs 1.8 bn, respectively. White cement and putty volumes fell to 0.26 mn (+50% y-o-y) whereas grey cement declined to 2.8 mn tons (+73% y-o-y, -21% q-o-q) on Covid-led regional restrictions. Blended realisation increased to Rs 5,408/ton (-1% y-o-y, +3% q-o-q), led by grey cement segment. Costs declined to Rs 4,085/ton (-4% y-o-y, +1% q-o-q) on lower other expenses partly offset by higher freight costs and higher power costs. Adjusted Ebitda came in at Rs 1,323/ton (+8.5 y-o-y, 7.5% q-o-q) on higher prices and lower costs.
Central India expansion on track and provides medium-term growth visibility: JKCE’s 4.2-mtpa capacity expansion project is ramping up well and driving volume growth whereas the Nimbahera-line 3 upgradation work is progressing as per schedule to commission in Q2FY22. Further, JKCE has started work on setting up a greenfield 3.5-4 mtpa integrated cement capacity at Panna, Madhya Pradesh for a total capex of Rs 29.7 bn or at $100/ton and expects to commission by Q4FY23e. Growth capex would result in negative FCF in FY2022-23E; nonetheless net debt/Ebitda remains <1X over FY2022-24E.
We revise FV to Rs 2,700/share: Our FV increases to Rs 2,700/share (from Rs 2,450/share) at 9X EV/Ebitda as we roll over to September 2023e. The stock has been the best performing cement stock in past two years. However, we now believe the positives are fully priced in: (i) market share gain due to significant capacity addition over FY2020-21; (ii) attractive growth prospects; and (iii) improved balance sheet. At 11X EV/Ebitda FY2023e (adjusted for CWIP), we see limited upside and maintain Reduce.