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Emkay Global
JK Cement (Buy)
CMP: ₹1,148.6
Target: ₹1,440
We maintain ‘Buy’ on JK Cement and overweight stance in sector EAP due to: 1) capacity additions that would help in volume and profitability growth; 2) exposure to white cement segment, which provides stable cash flows; and 3) comfortable gearing ratio (net D/E at 0.8x/0.6x in FY21/22E vs. 0.9x in FY20E) after the completion of ongoing capex.
The company commissioned a 2.64 million tonne (mt) clinker plant and 1 mt grinding capacity in Q2FY20. Additional grinding units with a combined capacity of 3.2 mt will be commissioned by the end of FY20. We expect 13.3 per cent volume CAGR for grey cement over FY20-22E.
We expect the white cement segment’s operating profit margin to be at 28-29 per cent until FY22E and the profitability of the segment is more sustainable. Grey cement's EBITDA/ton is expected to be ₹846/₹707/₹715 in FY20/21/22E versus ₹420 in FY19 (our estimate).
We believe measures to improve logistics and energy costs along with new capacities (better efficiencies) will help achieve cost savings in its North India operations. Limestone mines in Madhya Pradesh will help in further capacity expansions in grey cement.
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