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JK Cement - Superior Execution; Growth Plans To Continue: Motilal Oswal

Regional mix and cost benefits better than peers

<div class="paragraphs"><p>(Source: JK Cement website)</p></div>
(Source: JK Cement website)

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Motilal Oswal Report

JK Cement Ltd. has once again demonstrated superior execution capabilities after the commissioning of its new plant at Panna, Madhya Pradesh. The company achieved a capacity utilisation of ~90% within one year of commissioning, which helped the company deliver higher-thanindustry volume growth.

JK Cement has further plans to expand the capacity at Panna. Along with the Q3 FY24 results, the management announced a clinker capacity expansion (10,000 tpd or 3 mtpa) at Panna and associated grinding units in the Central region and Bihar (cumulative capacity: 6 mtpa). We believe that JK Cement has the potential to reach 50 mtpa plus capacity in the long run, as it follows a disciplined expansion approach.

We believe the company has a better regional mix and cost benefits vs. its peers (in terms of similar-sized capacities). About 83% of the company’s installed cement capacity is located in the most favorable regions (in terms of demand-supply and consolidation), viz., North, Central, and Gujarat. The share of modern kilns has increased to 81%+, leading to lower energy consumption.

Further, higher green energy/alternative fuel share, at ~50%/15%, helps the company reduce opex and carbon emissions.

We upgraded our Ebitda estimates by 6%/7% for FY25/26 in our recently released quarterly result update. The stock currently trades at 15 times/ 13 times FY25E/FY26E enterprise value/Ebitda (versus its five-year average one-year forward EV/Ebitda of 13 times).

Considering JK Cement’s long-term and well-planned growth strategy, higher capacity utilisation, as well as improving regional mix, we have raised our target multiple to 15 times FY26E EV/Ebitda (earlier 14 times) to arrive at our revised target price of Rs 5,050 (versus Rs 4,700). We reiterate our 'Buy' rating on the stock.

Click on the attachment to read the full report:

Motilal Oswal JK Cement Update.pdf
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