Volumes to rise with JK Cement's expansion but so will debt

Motilal Oswal estimates JK Cement will clock around 14% compound annual growth rate in grey cement volume from FY23 to FY26, higher than the industry. Photo: Mint
Motilal Oswal estimates JK Cement will clock around 14% compound annual growth rate in grey cement volume from FY23 to FY26, higher than the industry. Photo: Mint

Summary

  • The company has planned capex of 1,200 crore in FY24, 2,200 crore in FY25, and 1,800 crore in FY26. At the end of December 2023, its gross debt stood at 4,585 crore, and this is expected to peak at 5,600 crore by FY26.

Investors in JK Cement Ltd are sitting on handsome gains, with its shares having rallied 62% over the past year due to a combination of factors that could boost its earnings performance. Amid heightened competition, timely capacity additions and strategic regional diversification have boosted JK Cement’s prospects, and grey cement volume growth has been good. The company has guided for double-digit volume growth in grey cement in FY24, faster than the industry’s anticipated single-digit growth.

 

JK Cement surprised analysts by commissioning its greenfield integrated cement plant at Panna, Madhya Pradesh, within 18 months and ramping up capacity utilisation to around 90% within a year, said a Motilal Oswal Financial Services report.

The company has expanded its dealership network and, through robust marketing campaigns, tapped new markets in central india. Motilal Oswal estimates JK Cement will clock around 14% compound annual growth rate in grey cement volume from FY23 to FY26, higher than the industry. Last week the company completed the acquisition of Odhisha’s Toshali Cement to expand its footprint in the eastern market.

JK Cement also remains focused on optimisation measures with the implementation of waste heat recovery systems and an increasing share of green energy/alternative fuels in its fuel mix. These should help reduce its operating costs and carbon footprint.

So far so good, but higher capital expenditure (capex), largely for new capacity addition, could keep debt elevated in the medium term. The company recently announced 2,850 crore capex for an additional six million tonnes per annum of capacity, funded through debt and internal accruals.

The company has planned capex of 1,200 crore in FY24, 2,200 crore in FY25, and 1,800 crore in FY26. At the end of December 2023, its gross debt stood at 4,585 crore, and this is expected to peak at 5,600 crore by FY26.

“New capex will help JK Cement maintain its consistent volume growth in its existing market and entering Bihar would enhance its revenue diversification and provide an impetus for growth. So, we have revised our Ebitda estimate for FY25 and FY26 higher by 16% and 15%, but an EV/Ebitda valuation of 16.5 times is expensive," said Mangesh Bhadang, senior vice-president, Centrum Broking Ltd.

Meanwhile, the paints segment continues to clock operating losses thanks to higher branding costs. The management expects it to achieve Ebitda-breakeven by FY26. But whether it is able to achieve this remains to be seen, given that competition in the paints business has shot up with the entry of new companies.

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