Motilal Oswal's research report on JK Cement
JK Cement (JKCE) is increasing its grey cement capacity by 27% to 18.7mtpa by FY23-end, driving a CAGR of 11% in grey cement volume over FY22-25E. JKCE further intends to increase its grey cement capacity to 25mtpa by FY25E. Over FY22-25E, we expect a 12% EBITDA CAGR (~13% CAGR in grey cement and ~10% CAGR in white cement). Improvement in grey cement profitability will be driven by cost-saving initiatives (increasing blended cement share, renewable energy, and alternative fuel) and improvement in realization with increasing exposure in North and Central India. We estimate cumulative OCF (consolidated) at INR52b over FY23-25E, which will partly support further capex requirement. Consolidated net debt is estimated to peak out by FY24 and deleveraging will start from FY25 onwards.
Outlook
We upgrade JKCE to Buy, valuing it at 13.5x Sep’FY24E EV/EBITDA (premium to its five year average one year forward EV/EBITDA of 12.5x) to arrive at our TP of INR3,170, an upside of 17% from its current levels. Earlier, we had downgraded the stock to Neutral from Buy in Nov-21, considering rich valuations and looming concerns of input cost pressures.
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