Maintain ‘buy’ on JK Cement, target R770

JK Cement’s EBITDA increased 9% y-o-y to R170 crore (+37% q-o-q) and was higher than our estimate despite weak realizations (-8% y-o-y). Lower fuel prices (cost savings from pet-coke) and volume growth of 13% aided EBITDA. Cement prices have increased sharply in the North (key market) in April-May 2016 and will aid strong 1QFY17 earnings.

The immediate quarter aside, North has among the highest capacity utilisations in the country, but prices are relatively weak and will aid JK Cement’s earnings as they recover. Maintain ‘buy’ with a TP of

R770 (750). Higher-than-expected EBITDA was achieved despite weak realisations of

R4,363/ton (8% y-o-y, -2% q-oq, KIE estimate: Rs 4,434/ton) and was aided by lower power & fuel costs (22% y-o-y) a recurring trend in the quarter’s results led by lower pet-coke prices. JK Cement’s pet-coke usage is among the highest in the industry accounting for almost 80% in the fuel mix.

Grey cement volumes increased by 13% y-o-y to 1.9 million tons (+8 % q-o-q), white cement volumes increased by 15% y-o-y to 0.14 million tons and wall putty volumes increased by 23% yo-y to 0.13 million tons. Grey cement EBITDA declined by 2% y-o-y to Rs 897 million (+98% q-o-q) while white cement EBITDA increased by 46% y-o-y to Rs 1.06 billion (+31% q-o-q) largely aided by lower costs despite weak realizations.

Grey cement EBITDA/ton increased 84% q-o-q to R472/ton (-13% y-o-y) despite weak realizations aided by lower costs. Net income increased 1% y-o-y to

R706 million.