JK Cement Ltd has lowered its FY25 volume growth guidance for grey cement from 10% to 6-7%. It expects industry volume to grow 3-4%. The cut comes after a muted September quarter (Q2FY25) in which demand was hurt by an intense monsoon and prolonged kiln shutdown in south India.
Growth in central region volumes was more than offset by lower volumes from the south. Grey cement volumes fell 3.4% year-on-year to 3.8 million tonnes (mt) and capacity utilisation stood at 64% in Q2FY25. Total sales volume, including grey and white cement, fell around 5% to 4.3 mt. Grey cement demand is expected to improve from mid-November onwards, management said.
Also read: Prestige Estates gears up for big launches in H2, but timely approvals are key
Secondly, elevated costs hurt margin in Q2FY25, which led to a cut in FY25 and FY26 Ebitda estimates by some brokerages. But a comforting factor is that JK Cement’s brownfield expansion in central India, which will add 6 million tonnes per annum (mtpa) of capacity, is on schedule. It is expected to start operating by the Q3 or Q4 of FY26. This will increase its total grey cement capacity from 24.34 mtpa at present to 30 mtpa by FY26, thus providing volume growth visibility. Remember, JK Cement aims for 50 mtpa of capacity by FY30.
Further, capital expenditure (capex) guidance for FY25 and FY26 was maintained at ₹1,900 crore and ₹1,800 crore, respectively, including maintenance costs. The focus on improving cost efficiencies continues and the cost reduction target of ₹150-200 per tonne over two years was retained. Savings of ₹65-70 per tonne are likely in FY25 due to these measures.
Potential downers
That said, some potential dampeners cannot be ignored. A meaningful recovery in grey cement prices is crucial for the entire sector’s realisations outlook. JK Cement has been consistently increasing its share of premium products and trade mix to push realisations, but faces stiff competition from paint companies in the white cement/wall putty business. The wall putty market is expected to grow 8-9% in FY25 and for JK Cement, volume growth is guided to be 5%.
Also read: L&T can still meet its FY25 order inflow target
For now, the capex commitment for the paints business remains at ₹600 crore. Any increase here may not be well received by the Street, given that competition has increased in that sector, weighing on near-term earnings prospects.
JK Cement stock has rallied by 9.4% so far in 2024, ahead of large competitors such as Ultratech Cement and ACC. It trades at 15 times estimated FY26 enterprise value to ebitda (EV/Ebitda), showed Bloomberg data, a premium to some large caps. This is a rich valuation, even factoring in positives such as robust expansion, execution and cost efficiency efforts.
Also read: Lodha strives to balance pace of project additions and debt uptick
