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SSKI Upgrdes JK Cement

December 6, 2007

JK Cement is expanding its capacity by 3.5 million metric tonne (MMT) through a greenfield plant at Karnataka, which will be accompanied by a 50-megawatt (MW)
power plant at the site. The capital expenditure (capex) programme is in progress and the plant is expected to be commissioned by FY2009 end. This will augment the capacity of the company by 70% in FY2010 and will drive the volumes of the company going ahead.

JK Cement’s capex on captive power plants (CPPs) is progressing well. The company has already commissioned a 20MW pet coke based power plant and has replaced its 10MW turbine. It has partially implemented the 13MW waste heat recovery plant and expects the plant to get fully operational by FY2008 end. This will help the company save Rs 200 per tonne on power consumption.

JK Cement’s Q2 results were much above our expectations. The topline grew by a healthy 33% year on year (yoy) to Rs356 crore on the back of a blended volume growth of 12% yoy and a realisation growth of 17% yoy to Rs3,597 per tonne. Lower tax provision of 13% during the quarter made the profit after tax (PAT) grow by a whopping 142% yoy to Rs72.7 crore. The PAT growth was much ahead of expectations.

The stock is trading at at 10x its earnings and 6.6x its EV/EBITDA on FY2009 earnings estimate. It commands an EV per tonne of USD 84, which is lower than the benchmark asset valuation of USD 100-115 per tonne. Considering the cheap asset valuations, SSKI maintains Buy recommendation on the stock with an upgraded price target of Rs 330 per share

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