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Emkay Global
JK Cement (Buy)
Target: ₹1,801
CMP: ₹1,527.90
Our channel checks indicate a strong volume growth for JK Cement in Q2FY21 as the company benefits from new capacities. We expect 23-25 per cent y-o-y volume growth for grey cement in Q2FY21 and 8.5 per cent/14.6 per cent/5 per cent y-o-y in FY21/22/23.
Recovery in white cement/wall putty segments has been better than expected and we expect volume growth of 3-5 per cent y-o-y in Q2FY21, though FY21 volumes may decline 10 per cent y-o-y. Capacity expansion of 0.3mt (33 per cent of existing capacities) in wall putty in Q3-FY21 should help volume growth in FY22-23.
JK Cement increased production capacity of grey cement by 3.5mt in FY20. The grinding unit of 0.7mt in Balasinor, Gujarat, will be commissioned in Q3FY21. Environment clearance for the proposed expansion at Panna, MP, is expected to be received in Q3FY21. We raise sales volume estimates of grey cement by 4-5 per cent and EBITDA estimates by 3-4 per cent for FY21-23. JK Cement benefits from stable cash flows in white cement (OPM of 25-30 per cent in last 10 years). Cost saving strategies should help grey cement profits. We upgrade JK Cement to buy.
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