JK Cement zooms 111% in 6 months on strong operational performance

Shares of JK Cement, on Wednesday, rallied 5 per cent to hit a new high of Rs 3,025 in intra-day trade on the BSE. The stock was trading higher for the third straight day, surging 10 per cent during the period.

In the past six months, JK Cement's share price has zoomed 111 per cent, after the company reported a strong operational performance. The management’s efforts to improve cost efficiencies through newly added capacities (4.2 MT) are expected to drive profitability. In comparison, the S&P BSE Sensex has rallied 32 per cent during the same period.

For the second consecutive quarter, JK Cement has reported volume growth of more than 20 per cent year on year (YoY). This was primarily due to volume push from its recently added capacities. Given the buoyant demand scenario in North, the management has been able to grow volume without affecting realizations much.

For the first nine months (April-December) of the current financial year 2020-21 (9MFY21), JK Cement reported 29 per cent YoY growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) at Rs 1,075 crore. EBITDA margin improved 435 basis points (bps) to 25.56 per cent.

JK Cement on grey cement expansion 4.2 MnTpa said balance activity of OLBC from mines to plant for limestone transportation is going on in full swing and is schedule to complete in second quarter of next financial year. The construction work for upgradation of line No.3 at Nimbahera is progressing as per schedule and it is expected to complete in second quarter of next financial year, it said.

Post incurring major capex of over Rs 1,648 crore towards phase-I expansion, the next two years would lead to healthy operating cash flow (OCF) generation. However, the same is going to be mainly utilised towards the next phase of expansion at Panna (MP) for proposed around 4 MT greenfield capacity (8000tpd clinker with 2MTGU in MP & UP along with 22 MW WHRS) as it would entail a capex of around Rs 2,970 crore ($102/t). Hence, we expect debt levels to remain higher over the next two years, analysts at ICICI Securities said in results update.

However, incremental OCF from new capacity would settle down debt/EBITDA at 2.0x in FY23E vs. 2.5x in FY20. The said project would also be entitled to various state government incentives including capital subsidy in MP and GST benefits in UP, the brokerage firm said.

Given the strong demand and pricing scenario in North and improvement in West and South, analysts at Nirmal Bang Equities expect JK Cement to report good revenue growth over the medium term, driven by better-than-industry volume. Also, upgradation of Nimbhahera line 3 and increased clinker utilization are also likely to result in further cost savings. Increased putty capacity will further strengthen the company’s positioning in the white cement and putty markets, the brokerage firm said. However, the stock was trading above brokerages target price of Rs 2,950 and Rs 2,556, respectively.