Multibagger Mid Cap Stock Zoomed 15% In 1 Month, Trading Near 52 Week High, Buy For Robust Returns

Stock Outlook

On the NSE, JK Cement's current market price is Rs 3,196.70 apiece, trading 1.23% down compared to its previous close of Rs 3,236.35 apiece. Today stock opened at Rs 3,243.75 apiece. The stock is currently trading near its 52 week high, which is Rs 3,659.25 recorded on 10 January 2022. Its 52 week low is Rs 2,003.70 recorded on 23 June 2022. 

The stock has given 6.69% positive return in a week, whereas, in 1 month, it gave 15.69% positive return. The stock has given 19.14% positive returns. Over a year, it has fallen 3.36%.  It has given 178.94% multibagger returns in 3 years and 223.06% multibagger returns in 5 years, respectively. 

Completes expansion of 4mtpa; further expansion plans underway

JKCE recently commenced commercial operations at its greenfield integrated plant at Panna, Madhya Pradesh (Clinker/Grinding capacity of 2.64mtpa/ 2mtpa) and a greenfield grinding unit at Hamirpur, Uttar Pradesh (Grinding capacity of 2mtpa) ahead of its original schedule. Production capacity in Gray Cement now stands at 18.7mtpa.  It is increasing its Gray Cement capacity by 5.5mtpa at an estimated capex of INR11.6b. This will include brownfield expansion of 2mtpa through debottlenecking at four units and will be completed by Mar'23. JKCE will set up two split greenfield grinding units at Ujjain, Madhya Pradesh and Prayagraj, Uttar Pradesh with an expected commissioning by 2QFY25. Clinker capacity at the Panna plant will increase by 2,000tpd to 10,000tpd (from 2.64mtpa to 3.3mtpa) by Sep'23. This, along with the surplus Clinker in North India, will help meet the Clinker requirements of the above mentioned plants. The management is targeting 9-10% market share in Central India.  Peak production capacity after all expansions will be 22mtpa (90% capacity utilization), based on 68% Clinker factor. A Clinker factor of 63% may result in full capacity utilization. In FY22, it achieved a Clinker factor of 66%. 

Scope exists for further cost reductions in logistics and energy

JKCE has multiple scope for cost reductions, a few of them are: 1) Increase in Clinker factor through higher trade sales, which currently stands ~68%. The target is to increase it to ~70%. Increase in blending by 1% leads to cost saving of INR25-30/t. 2) Increase in AFR and renewable power share - 18MW WHRS at its Muddapur (South) plant. 3) Cost reduction of INR20-30/t in logistics cost.  Share of alternate fuel in total energy consumption is in double-digits (in calorific value terms) and the management aims to further improve its usage. WHRS of 22MW at the Panna plant will be commissioned by Mar'23. 

Expect profitability to remain at 2Q levels in 3QFY23

No major savings in energy cost are expected for JKCE in 3QFY23 as it consumed its low-cost inventory and its cost increase was lower v/s that of the industry. The latter may see cost benefits of INR100-150/t (in line with our estimate). There has not been much improvement in Cement prices in the company's key markets. North India has seen a price increase of INR5-7/bag in Nov'22. Prices in South and West India rose INR10/bag each in Oct'22. No price increase in South and West India occurred in Nov'22. 

Capex guidance and other highlights

The profitability of its Panna plant will be lower in 2HFY23 due to stabilization of the plant, a gradual pick-up in capacity utilization and commissioning of other infrastructure (WHRS and one raw mill are yet to be commissioned). The management aims to achieve 0.3mt/2-2.5mt volumes from this plant in 4QFY23/FY24. Premium product sales constitute 10% of trade volumes, and the aim is to increase it to 15% first and then 20%. Capex is pegged at INR19b/INR16-17b/INR5b for FY23E/FY24E/FY25E. Equipment prices have increased by 30-40% in the last two years. Capex cost for the greenfield plant is estimated at USD110-120/t.  Net debt is estimated to peak out at INR37b by Sep'23 (net debt stood at INR29b as of Sep'22). New expansion plans will only be considered in Mar'24 after considering its leverage position and profitability.

JKCE is eligible for incentives (Aligarh, Hamirpur, Prayagraj, and Panna units) under the state government industrial promotion schemes. The company is not receiving incentives for its Aligarh plant at present and expects to start receiving the same from Mar'23. Cumulative incentives over a 10-year period from the Panna and Hamirpur units are pegged at INR5b/INR7-8b, respectively. The OPM for White Cement and Wall Putty is hovering ~20% v/s ~24% earlier. White Cement is doing better, but higher competition in Putty is restricting price increases (the cost of imported materials has increased and the depreciation in the USD:INR is hurting). As White Cement faces an import threat from Iran, supplies to unorganized and Paint players can't be restricted. White Cement usage in Putty is 16-18%. In the Putty business, the market share of the two leading players has fallen to 40-45% from 85-90% four years back. 

Valuation and view

JKCE trades at 14.3x/12.2x FY24E/FY25E EV/EBITDA, with an EV/t of USD158/ USD121. A further upside will be driven by: 1) EBITDA growth (13% CAGR over FY22-25E), 2) improvement in profitability of the Gray Cement business (blended EBITDA/t of INR1,110/INR1,180 in FY24E/FY25E), and 3) higher OCF, which will support expansion as well as the deleveraging of its Balance Sheet. "We value JKCE at 14.5x Sep'24E EV/EBITDA considering its growth plans (one of the best among mid-sized companies) and cost saving strategies. We maintain our Buy rating with a revised TP of INR3,550. We had recently upgraded our rating to Buy and the stock has risen 18% since then, outperforming the BSE200 index by 15%," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.