JK Cement’s growing market share is positive, but valuations are limiting the rise


JK Cement Ltd, which focuses on the markets of North and Central India, is recording market share gains. The company’s gray cement volumes, which had ramped up its recently commissioned plant in northern India, fell 19% year-over-year (year-on-year) to 1.59 million tonnes in the June quarter, a lower decline than its peers. Analysts said industry volumes in the company’s major markets, north and central India, contracted 30 to 35 percent in the June quarter.

Management’s comments on the recovery in demand for the September quarter are also optimistic. From July to August, JK Cement’s gray cement volumes grew 20% year-on-year. The volumes of the white cement or mastic segment have largely normalized.

“Higher capacity would help gain market share. We expect JK Cement’s gray cement volumes to increase 2% year-on-year in FY2021E compared to a 13% year-on-year decline in the industry, ”analysts at Kotak Institutional Equities said in a September 2 report. gray cement is a key contributor to the company’s overall volumes and rising revenues.

Of the total planned additional capacity of 4.2 million tonnes per year (mtpa), JK Cement has ordered 3.5 mtpa. It expects to see a delay in commissioning the 0.7 mtpa capacity addition in Gujarat in the December quarter of the current fiscal year. These will bring the total capacity of the company to 14.7 mtpa, approximately 40% more than its level in fiscal 2019. Management expects to commit 700-800 crore in capital expenditure in FY21 on its Mangrol, Nimbahera, Balansinor and Panna projects.

JK Cement’s presence and expansion in the favorable pricing region is positive, analysts said. However, after the stock’s recent surge, analysts see a limited rise from its new highs.

“The 19% rise in the share price after our T4FY20 results update dated June 18, 2020 leaves limited upside potential,” analysts at Dolat Capital Markets Pvt said. Ltd in a note dated September 2. The action ended Thursday at 1,497 on the NSE.

Seasonally weak demand is expected to keep cement prices in correction mode during the September quarter. Additionally, management has warned of rising variable costs over the next few quarters due to rising petroleum coke and diesel prices. The cost of the main inputs, petroleum coke, has risen to $ 95 / tonne now, from $ 60 / tonne in May, management said.

Meanwhile, Bloomberg data shows the stock is trading at one-year EV / Ebitda futures by 10 times. EV stands for enterprise value. Ebitda is short for earnings before interest, taxes, depreciation and amortization.

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