JK Cement investors may need to tone down high expectations
₹3,031 crore in Q1FY24 from ₹2,910 crore in Q4FY23 mainly due to additional borrowing for the Ujjain project. While the management believes that net debt has peaked, analysts feel that an update/timeline on de-leveraging would be helpful. “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," said Mangesh Bhadang, senior vice-president, Centrum Broking Ltd.
For FY24, the company is targeting capex of ₹1,200-1,400 crore and ₹700-800 crore for FY25. “Profitability is a concern for JK Cement. Our estimates show that its grey cement segment did an Ebitda/tonne of ₹800 in Q1FY24, which is one of the lowest among peers.
Increasing competition in its key market of central India where it is adding capacity, could be a challenge," Bhadang added. Meanwhile, developments in the paint business, though still at a nascent stage, are crucial given that competition is heating up in the paints sector. In the earnings call, the management said for paints business, JK Cement is targeting revenue of ₹120-150 crore in FY24 and ₹300 crore in FY25.
In Q1FY24, its paints segment’s revenue was ₹25 crore, while Ebitda loss was ₹2 crore. An aggressive capex commitment for the paints business going ahead could hurt investor sentiment, caution analysts. After falling by 14%in 2022, the recovery so far in 2023 has been slow with the midcap stock up by 6%.
“We like JK Cement’s presence and new expansion in the regions having favourable demand and pricing, but we feel the current EV/tonne limits any further upside in the stock," said an Incred Research Services Pvt. Ltd report on 17 August. EV is enterprise value.
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