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.

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Motilal Oswal JK Cement Update.pdf
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