Coronavirus curbs have impacted the cement supply chain – JK Cement

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,505 (+1.4%). Top gainers in NIFTY50 were M&M (+7.8%), Bajaj Finserv (+6.6%), and Tata Motors (+5.4%). The top losers were Dr Reddy (-3.9%), TCS (-3.9%), and Tech M (-3.3%). The top sectoral gainers were PSU BANKS (+4.5%), AUTO (+4.3%), and FIN SERVICES (+3.4%) while the sectoral losers were IT (-3.3%) and PHARMA (-1.2%).

Excerpts of an interview with Mr. Rajnish Kapur, COO, J.K.Cement (JKCEMENT) with CNBC -TV18 dated 12th April 2021

• Currently. lockdowns have not impacted the production per se in any of their operations. What they are now witnessing is on the supply side, movement of the cement outside the plant has got affected. In some of the cities, there are partial lockdowns, some places it is night curfew, and in some cities in MP where the day movement is also not allowed. 
• Raw material cost is a matter of concern. The pet coke price has risen ~110 per cent and today imported pet coke is costing about $ 126 per tonne. 
• Similarly, coal prices have increased by 54 per cent so these two combined would have an impact of anything about Rs 250 per tonne on the cost of production.
• They are actually looking at total power and fuel cost increase of somewhere in the region of Rs 250-275 in 1Q and 2QFY22. 
• There doesn’t seem to be any indicators at this point in time that the cost is going to go down. There has been a marginal increase in the price of cement by ~Rs 5-10 in the markets where they operate.
• At an industry level, they are not much concerned about demand at this point in time. They feel that the country has got enough to work upon. 
• As an industry, they are looking at something between 10 and 12 per cent growth in FY22 which has just started.

Asset Multiplier comments:

• Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and is expected to reach 379 MT by FY22. (https://www.ibef.org/industry/cement-india.aspx)
• India has a high quantity and quality of limestone deposits (the raw material for cement) throughout the country. Hence, the cement industry has a huge potential for growth.
• The Eastern states of India are likely to be the newer and untapped markets for cement companies. These could contribute to the cement companies’ bottom line in the future.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of JKCEMENT was ₹ 2,852/- as of 13th April 2021.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 107/ 123 for FY22E/23E respectively.
• The consensus price target is ₹ 2,574/- which trades at 21x the earnings estimate for FY23E of ₹ 123/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”