JK Cement Ltd. – Healthy realisations and lower operating costs driving profitability

Sector Outlook – Positive
JK Cement Ltd. had a great quarter, with their revenues reaching Rs. 29,348 million. This was a 6.6% increase from the previous quarter and a significant 20.6% jump compared to the same period last year, even surpassing what analysts had predicted. 

The boost in sales came from growing demand in both rural and urban areas, along with higher cement prices. They sold 4.15 million tonnes of grey cement and used 75% of their production capacity. 

Their earnings before interest, taxes, depreciation, and amortisation (EBITDA) reached Rs. 6,250 million, growing 26% since last quarter and an impressive 135% since last year. This increase was due to strong sales and lower costs of running the business. 

Their EBITDA margin hit 21.3%, which was more than what was expected and much higher than in previous periods. 

Their profit after tax (PAT) was Rs. 283.8 crores, a huge increase of 59.4% from last quarter and 667.1% from the same time last year, achieving a near double-digit margin of 9.6%. These figures were better than what the market had estimated. 

Overall, JK Cement’s performance this quarter was quite impressive and exceeded expectations.

Key Concall Highlights

• JK Cement expects the demand for cement in India to grow by 7-9%.
• They might struggle to increase prices in the first quarter of FY25 due to elections and other factors.
• The company plans to expand its grey cement production by 6 million tonnes, aiming to finish by FY26.
• In Q3FY24, they started a new 1.5 million tonnes grinding unit in Ujjain, Madhya Pradesh, and plan another 2 million tonnes unit by Q2FY25. By FY26, their total grey cement capacity should reach 30 million tonnes.
• They’re noticing a change in their putty product mix, leading to slightly higher sales prices.
• In Q3FY24, they used 75% of their capacity to produce 4.15 million units of grey cement.
• Their net debt compared to EBITDA has reduced to 1.64% from 2.21% as of March 31, 2023.
• JK Cement has set aside Rs. 1,200 crores for capital expenses in FY24, Rs. 2,200 crores for FY25, and Rs. 1,800 crores for FY26.
• They aim to sell 16.5 million tonnes of cement this year and plan to add 2 million tonnes to their output in the next two years.
• Currently, they have a 64 MW waste heat recovery system (WHRS) capacity, with an additional 18 MW set to start in Q4FY24, impacting their results from then and more significantly from Q1FY25.
• They plan to increase their green power capacity by 50-60 MW each year.

Valuation and Outlook

JK Cement Ltd. had a great quarter, thanks to lower costs for fuel and power, and increased demand for cement. This success was driven by high demand after the festive season, and the government’s focus on infrastructure and spending before elections, along with demand from both cities and rural areas. 

Looking ahead, the company is expected to do even better if it keeps its operating costs low and uses more of its production capacity. This could mean higher profits and two strong quarters in a row. 

However, a potential slowdown in new government projects and less spending on infrastructure due to upcoming elections might reduce new orders from this sector. 

Overall, JK Cement is likely to keep doing well because of steady demand, low operating costs, new capacity coming online, and higher prices for its products in the coming quarter.