JK Cement (JKCem)’s 2QFY2016 reported numbers have come in better than our
estimates. The company’s net sales grew by 4.8% yoy to Rs867.9cr (above our
estimate of Rs832.2cr). The company’s blended sales volume increased by 2.8%
yoy, led by 4.3% yoy growth in the white cement (including putty) business.
Blended realization/tonne, at Rs4,743, increased 2.0/6.3% yoy/qoq during the
quarter (above our estimate of Rs4,596). The EBITDA increased by 21.4% yoy to
Rs106.4cr, which is above our estimate of Rs97.1cr. The EBITDA/tonne improved by
18.1% yoy to `581 and is above our estimate of Rs536. The Net profit declined
57.5% yoy to Rs13.7cr, on account of higher depreciation and interest expenses.
EBITDA margin at 12.3%, up 167bp yoy: For 2QFY2016, JKCem posted a
marginal 4.8% yoy increase in its top-line to Rs867.9cr. The EBITDA came in at
Rs106.4cr, an increase of 21.4% yoy (above our estimate of Rs97.1cr). The EBITDA
margin at 12.3% is above our estimate of 10.8%, led by better than expected
realization and flat operating costs. The operating cost/tonne remained flat yoy at
Rs4,161. The EBITDA/tonne came in at Rs581, up by 18.1% yoy, due to increase in
realization and flat operating costs.
Outlook and valuation: Going ahead, we expect the company to witness
moderation in demand and impact on profitability. The Management has also
reduced its grey cement volume guidance from 7.5mt to 6.5mt for FY16 due to
soft demand. We forecast top-line to grow at a CAGR of 18.4% and EBIDTA to
grow at CAGR of 33.3% over FY2015-17E. At the current market price, the stock
trades at 7.8x FY2017E EV/EBIDTA and EV/tonne of $96 on FY2017E blended
capacity. We maintain our Buy rating on the stock with a target price of Rs744
based on 8.0x grey cement and 9.5x white cement FY2017 EV/EBIDTA.

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