JK Cement Ltd’s stock price has seen a decline of almost 5% following the announcement of its June quarter results (Q1FY24), despite a strong 25% year-on-year volume growth aided by the ramp-up of capacity at its Panna and Hamirpur units. The management remains optimistic about achieving 15-20% volume growth for FY24, although Q2 may witness some demand moderation due to seasonal factors.
The company’s grey cement capacity expansion plans are progressing as intended, with new plants in central India achieving a 75% capacity utilization level in a short time frame. However, JK Cement’s net debt increased slightly from ₹2,910 crore in Q4FY23 to ₹3,031 crore in Q1FY24, mainly due to additional borrowing for the Ujjain project. While the management believes that the net debt has reached its peak, analysts are eager for an update or timeline on debt reduction.
Mangesh Bhadang, Senior Vice-President at Centrum Broking Ltd, noted, “Considering the capital expenditure (capex) lined-up for FY24 and FY25, we don’t expect faster debt reduction, thus weighing on free cash flow generation.” JK Cement aims for a capex of ₹1,200-1,400 crore for FY24 and ₹700-800 crore for FY25.
JK Cement’s profitability has raised concerns among analysts. In Q1FY24, its grey cement segment achieved an Ebitda/tonne of ₹800, one of the lowest among its peers. Increased competition in its central India key market, where capacity is being expanded, poses a potential challenge.
Additionally, the company’s developments in the paints business are crucial as competition intensifies in the sector. While still in its early stages, JK Cement’s paints business aims for revenues of ₹120-150 crore in FY24 and ₹300 crore in FY25. In Q1FY24, the paints segment generated ₹25 crore in revenue but had an Ebitda loss of ₹2 crore.
Analysts caution that an aggressive capex commitment for the paints business could negatively impact investor sentiment. Despite a 6% recovery in the stock so far in 2023 after a 14% decline in 2022, analysts from Incred Research Services Pvt. Ltd suggest that the stock’s current enterprise value to Ebitda (EV/Ebitda) multiple of 12.75 times for FY25 EV/Ebitda limits further upside potential. For now, there seem to be few prominent triggers for significant upward movement in the stock’s price.
