BackJK Cement: Market share gain is a positive but upside in the stock limited
JK Cement Ltd saw its grey cement volumes decline by 19% year-on-year to 1.59 million tonnesWhile the industry saw volume decline of 10% over July–August, the company’s volumes grew by nearly 20% y-o-y
PremiumJK Cement Ltd saw its grey cement volumes decline by 19% year-on-year (y-o-y) in the June quarter to 1.59 million tonnes. This compares with the industry’s volume fall of nearly 30% y-o-y. This highlights market share gains for the company, which is led by its 50% capacity expansion in North India, according to analysts.
The company’s volumes grew by nearly 20% y-o-y, while the industry saw volume decline of 10% over July-August, the company said in a post-earnings conference call.
Akin to peers, the company got a tight grip on other expenses. Its operating cost per tonne was down 4.4% y-o-y in the June quarter, better than analysts’ expectations. Q1FY21 witnessed sharp decline in fixed costs because of a reduction in consultancy charges and administration, travel, and branding expenses, the management said. Variable costs, though, are expected to go up because of an increase in petroleum coke (pet coke) and diesel prices. The price of pet coke has risen to $95/tonne now from $60/tonne in May this year, the management said.
Analysts are positive on the company’s growth prospects for multiple reasons. However, after the recent run-up, they don’t see the stock price moving very sharply. Shares of the company touched this year's high of Rs1,613 on 7 August on the NSE and are currently trading at Rs1,487.
“Though we like JKCE due to its exposure to the white cement segment, cost-saving initiatives and capacity expansion plans in the grey cement, the increase in the stock price recently leaves little room for a further upside," analysts at Emkay Global Financial Services said in a report on 2 September.
Concurring, analysts at Dolat Capital Markets Pvt. Ltd said that the company’s strategic grey cement expansion into strong pricing markets of north/central will benefit it. "However, 19% run up in stock price post our Q4FY20 result update dated 18 June 20, leaves limited upside," said the Dolat report on 2 September.
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