Results Review for JK Cement, KNR Constructions, NOCIL, Heidelberg Cement

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JK Cement (NS: JKCE ): We maintain our REDUCE rating on JK Cement (JKCE), with a revised TP of INR 2,755 (11x Mar-25E consolidated EBITDA). In Q4FY23, JKCE reported 16% YoY consolidated volume growth led by the fast ramp-up of Panna IU in the central region. Consolidated unitary EBITDA recovered ~INR 150/MT QoQ on fuel cost reduction and op-lev gains. Fuel cost is expected to further cool off in FY24E, driving margin recovery. The upcoming expansions in UP and MP will increase grey cement capacity to 24mn MT in FY25E.

KNR Constructions Ltd (NS: KNRL ): KNR reported revenue/EBITDA/APAT of INR 11.8/2.1/1.3bn, beating our estimates on all fronts. It guided for FY24 revenue at INR 40bn+, with an EBITDA margin of 14-16% (better margin in H2FY24 vs. H1FY24). For FY23, it won projects worth INR 20.4bn vs. its guidance of INR 50bn and guided for an FY24 order inflow (OI) of INR 40-45bn. The order book (OB) as of Mar’23 stands at INR 88.7bn (~2.4x FY23 revenue). Given the aggressive competition, the company is looking at projects from different segments like state highways, metro, railways and irrigation. The balance HAM equity requirement is INR 4.4bn as of Mar’23, of which INR 2.6/1.6bn will be infused in FY24/25. With INR 0.4bn in Q4FY23, it incurred a capex of INR 1.4bn in FY23 and guided for a similar amount for FY24. The NWC days stood at 67 vs. 53 as of Dec’22. The irrigation receivables as of Mar’23 stood at INR 5bn vs. INR 6.5bn as of Dec’22. At the standalone level, KNR continues to enjoy a strong net cash position. We cut our estimates to factor in lower inflows and margins. We maintain BUY with a reduced TP of INR 318/sh (18x Mar-25E EPS, HAM 1x P/BV).

Nocil Ltd (NS: NOCI ): Our BUY recommendation on NOCIL with a TP of INR 280 is premised on (1) a ramp-up in capacity utilisation and (2) expansion of margin with a focus on specialised rubber chemicals. Q4 EBITDA/PAT were 7/14% above our estimates, owing to a 6% rise in revenue, lower-than-expected employee cost and other expenses, offset by higher-than-expected raw material cost.

HeidelbergCement (ETR: HEIG ) India Ltd (NS: HEID ): We maintain our REDUCE rating on Heidelberg Cement (HEIM), with an unchanged target price of INR 160/share (7x Mar-25E EBITDA). In the absence of any major planned expansion for the next few years, we expect HEIM to continue to lose market share. In Q4FY23, volume fell 4% YoY (the sixth consecutive quarter of YoY decline). While unit EBITDA recovers ~INR 245/MT QoQ (from its nine-year low) to INR 583/MT, it remains weak and is down INR 380/MT YoY.

Deccan Cements Ltd (NS: DCNC ): We maintain our ADD rating on Deccan Cements (DCL), with a lower target price of INR 450/sh (6x its Mar-25E EBITDA). DCL reported an all-around weak performance in Q4FY23 owing to subdued volume, realisation and elevated opex. Its revenue grew by 5% YoY in Q4FY23. However, higher fuel prices led to a decline in EBITDA by 15% YoY. Further, lower EBITDA along with higher capital charges and tax rates led to a steep decline in APAT by 48% YoY. DCL is working on a 2mn MT integrated capacity increase by FY25E-end. Capex more than doubled YoY in FY23 to INR 2.28bn (picked up in H2FY23). We expect volume growth to pick up from FY26 onwards (remain muted during FY24/25).

JK Cement

Healthy volume ramp-up; margins remain sub-par

We maintain our REDUCE rating on JK Cement (JKCE), with a revised TP of INR 2,755 (11x Mar-25E consolidated EBITDA). In Q4FY23, JKCE reported 16% YoY consolidated volume growth led by the fast ramp-up of Panna IU in the central region. Consolidated unitary EBITDA recovered ~INR 150/MT QoQ on fuel cost reduction and op-lev gains. Fuel cost is expected to further cool off in FY24E, driving margin recovery. The upcoming expansions in UP and MP will increase grey cement capacity to 24mn MT in FY25E.

Q4FY23 performance: Grey cement volume rose 17/13% YoY/QoQ to 4.14mn MT, led by a ramp-up of its central India capacity. NSR improved by 1% QoQ. As per our estimates, unit EBITDA recovered ~INR 170/MT QoQ to ~INR 600/MT (down ~INR 200/MT YoY). Despite achieving high utilization and healthy trade sales (69% share), high 40%+ green power consumption and 13% TSR, the operating margin remains sub-par, in our view. Segmental EBITDA recovered ~55% QoQ (on a low base, but down ~15% YoY) to ~INR 2.5bn (70% EBITDA share). White/Putty (w/p) volumes rose 7/9% YoY/QoQ to 0.52 mn MT. Segmental EBITDA rose ~15/5% QoQ/YoY to INR 1bn. Segmental EBITDA margin remained flattish at ~16% QoQ (down 200bps YoY, our estimation as the company doesn’t disclose the same).

FY23 cash flows: FY23 consolidated volume rose 16% YoY (grey +17%. w/p +7%). However, EBITDA fell 13% YoY (grey down ~20% YoY, w/p down ~2% YoY). Despite lower EBITDA, FY23 OCF jumped 57% YoY to INR 13.8bn on strong inventory management. The company spent INR 18.7bn towards expansions and paint business acquisition. Net debt increased ~50% YoY to INR 37bn, increasing its net debt to EBITDA to 2.8x vs 1.9x YoY.

Capex update and outlook: JKCE will incur a total Capex of ~INR 12-14/7- 8bn in FY24/25E towards ongoing expansions. Fuel costs are expected to cool off in FY24E, boosting margins. The company expects to deliver ~15%+ grey cement volume offtake in FY24E on the ramp-up of central plants. Factoring in strong Q4FY23 result, we marginally increase our FY24/25E EBITDA estimates by 1/4% respectively.

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