Cement

15 Sep

Expects volumes to beat industry growth by 10% – JK CEMENT

Update on Indian Equity Market:

On Wednesday, NIFTY ended at 17,519 (+0.8%) as it closed near its high at 17,533. Among the sectoral indices, PSU BANK (+2.8%), CONSUMER DURABLES (+1.0%), and AUTO (+0.9%) ended higher, whereas MEDIA (-1.6%) ended lower. Among the stocks NTPC (+7.5%), BHARTIARTL (+4.8%), and COALINDIA (+4.0%) led the gainers while TATACONSUM (-1.0%), NESTLEIND (-0.6%), and GRASIM (-0.5%) led the losers.

Excerpts of an interview with Mr. Rajneesh Kapoor, Chief Operating Officer, JK Cement (JKCEMENT) with CNBC TV18 on 12th September 2021:

  • JKCEMENT saw an average price decline of 3-4% across all regions in India excluding the East. Traditionally, August is a time where prices drop as a result of peak monsoons. JKCEMENT expects this sentiment to continue in the month of September as well.
  • However, this year’s August was slightly different as the company saw the highest volumes in terms of market demand in FY22 and Kapoor expects this trend to continue hereafter.
  • Volumes in Q3FY22 and Q4FY22 are going to be really good as a result of an increase in capacity utilization hence, there could be an uptick in prices in October and November as the monsoon starts receding. September could see a price uptick of 1.2%.
  • Demand has been healthy across all regions in the country amounting to 40-50% on a year-to-date basis. However, the prices at this point of time are marginally below on a Y-o-Y basis as compared to last year.
  • The real challenge that the industry faces today is in terms of cost. US Petcoke which used to be imported at a rate of 74$ to 78$ per ton is currently trading at 190$ per ton. This problem gets complemented by the scarcity of coal not only in India but also in international markets. China has stopped coal production for safety reasons and Indonesia, also a big supplier has peak monsoons which is why coal supplies have gone down. As a result, fuel cost has increased close to 100%.
  • Going forward, the price increase is going to be a necessity and this could take place post-monsoon.
  • In terms of volumes, JKCEMENT expects good growth because of capacity growth in FY20. Mr. Kapoor expects JKCEMENT to be 10 percent ahead of the market.
  • Capacity addition highlights: Capacity expansion at Panna, Madhya Pradesh is progressing as per the schedule and is expected to be commissioned by Mar-23.

Asset Multiplier Comments

  • The construction business is expected to resume its pace after the monsoon recedes and hence the demand for cement could go up.
  • JKCEMENT has decided to do several capacity expansions and up-gradation of its existing kilns.
  • These could contribute in increasing JKCEMENT’s market share and revenues.

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

  • The closing price of JKCEMENT was ₹ 3395 /- as on 15-Sept-2021. It traded at 28x/25x the consensus EPS estimate of ₹ 123/138 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 3,429/- implies a PE multiple of 25x on FY23E EPS of ₹138/-

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.”

 

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23 Aug

Now comfortable with organic as well as inorganic growth – Shree Cement

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.3% higher at 16,496. Top gainers in NIFTY50 were HCLTECH (+4.3%), TCS (+2.1%), and NESTLEIND (+2.0%). The top losers were GRASIM (-3.1%), ADANIPORTS (-2.8%), and M&M (-2.6%). The top gaining sectors were IT (+1.7%), OIL & GAS (+0.4%), and FINANCIAL SERVICES (+0.4%) while the top sectoral losers were MEDIA (-1.7%), AUTO (-1.5%), and REALTY (-1.0%).

Now comfortable with organic as well as inorganic growth – Shree Cement

Excerpts of an interview with Mr. HM Bangur, MD of Shree Cement (SHREECEM), aired on CNBC TV18 on 20th August 2021:

  • SHREECEM saw good average prices in 1QFY22 and management expects prices to remain good. The issue is on the raw material cost pressure. Commodity prices have increased almost 2x vs last year.
  • SHREECEM has hedged fuel upto end of November 2021, meaning energy prices for 2QFY22E will remain at par with 1QFY22.
  • Despite this, management agrees that cement prices have to increase eventually or else margins will suffer for the entire industry. The current commodity cost pressure cannot be endured by companies for a long time.
  • SHREECEM targets to have volumes of 27 to 28 mn tonne for FY22E, translating to a low growth YoY.
  • EBITDA per tonne for SHREECEM should sustain around 1QFY22 levels of Rs 1,481, with a band of +/- Rs 50.
  • Demand in the Northern and Southern India has been good. There is a seasonality factor in Eastern India where demand picks up only after October. There have been no surprises on the demand front. Pressure on demand has subsided after the April-May period as the Covid-19 cases reduced.
  • SHREECEM has about Rs 64,000 mn cash on book. The capex intensity for last 2 years was lower due to Covid-19 disruption. SHREECEM had completed their QIP just a few months before the onset of Covid-19 in India in 2020.
  • On the subject of cash utilization, SHREECEM is planning to order a 4 mn tonne cement unit in north India in the next 1 month.
  • Unlike before, SHREECEM is now comfortable with inorganic growth as well and is looking for acquisition opportunities. Till now were averse to acquisitions- now comfortable with both organic and inorganic growth. Capex gap for 2 years due to covid that’s why there is cash acquisition as did QIP just before covid.

Asset Multiplier comments:

  • In FY21, despite impact of covid-19 on the revenue, Cement companies in India managed to maintain good EBITDA levels due to good pricing, cost optimization, fuel mix optimization and increase in use of green power.
  • Demand for cement in India is expected to remain healthy due to Government’s push on infrastructure, roads and railways, housing and rural development.

 

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

 

  • The closing price of SHREECEM was ₹ 25,854/- as of 23-August-2021.  It traded at 35x/ 30x/ 25x the consensus earnings estimate of ₹ 741/ 866/ 1,019 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 27,718/- which trades at 27x the earnings estimate for FY24E of ₹ 1,019/-

 

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.”

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13 Apr

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.”


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05 Feb

Expect double-digit volume growth in FY22E – BIRLACORPN

Update on the Indian Equity Market:

On Friday, Nifty closed 0.2% higher at 14,924. Within NIFTY50, SBIN (+11.3%), TATASTEEL (+4.9%), and DIVISLAB (+4.5%) were the top gainers, while AXISBANK (-3.1%), BHARTIARTL (-2.7%), and TATAMOTORS (-2.4%) were the top losing stocks. Among the sectoral indices, PSU BANK (+3.6%), PHARMA (+1.7%), and METAL (+1.0%) were the top gainers while MEDIA (-4.5%), AUTO (-1.3%), and IT (-0.9%) were the top losing sectors.

Expect double-digit volume growth in FY22E – BIRLACORPN

Excerpts of an interview with Mr. Aditya Saraogi, CFO, Birla Corporation, aired on CNBC-TV18 on 4th February 2021:

  • BIRLACORPN management expects volumes of 13 mn ton in FY21 as compared to 13.6 mn ton in FY20. Lower volumes in 1QFY21 due to the pandemic have impacted FY21 full year volumes to be marginally lower YoY.
  • In FY22, management expects demand for cement to be strong on back of Government’s focus on growth and investments. Management expects double digit volume growth for BIRLACORPN in FY22.
  • Growth in demand is primarily coming from rural and infrastructure segments. Tier 2 & 3 cities are also going well.
  • In 4QFY21, management expects double digit YoY growth in volumes. Realizations have come off a bit and there is increase in cost due to fuel price inflation. As a result, margins may be under pressure in 4QFY21E and EBITDA per ton may come down by ~Rs 100 or so.
  • Going ahead, given the robust demand environment, management expects no difficulty in passing on increased costs and expects to maintain EBITDA margins in coming quarters.
  • BIRLACORPN is in the process of adding 4 mn ton capacity by Sep-2021. They also have an ambitious target of achieving 25 mn ton capacity by FY25 from current capacity of 15 mn ton.
  • BIRLACORPN’s current net debt position is Rs 35 bn and peak net debt is expected to be below Rs 40 bn. Cost of capital for BIRLACORPN has come down by 150-170 bps.

Consensus Estimate (Source: market screener website)

  • The closing price of BIRLACORPN was ₹ 831 as of 05-February-2021. It traded at 12x/ 12x/ 10x the consensus EPS estimate of ₹ 67.0/69.3/84.2 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 973/- implies a PE multiple of 12x on FY23E EPS of ₹ 84.2/-.

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.”

 

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13 Oct

Demand to bounce back as festive season approaches – Dalmia Bharat

Update on the Indian Equity market:
On Monday, Nifty50 ended marginally higher at 11,931 as the Finance Minister announced fiscal stimulus measures. Among the sectoral indices, IT (+1.7%), PHARMA (+0.9%), and FMCG (+0.3%) were the only gainers while MEDIA (-2.4%), PSU BANK (-1.7%) and REALTY (-1.1%) led the losers. Among the stocks, INFY (+2.9%), ITC (+2.7%), and UPL (+2.0) led the gainers while BHARTIARTL (-2.8%), JSWSTEEL (-2.7%), and GAIL (-2.6%) led the losers.

Excerpts of an interview with Mr. Mahendra Singhi, MD and CEO of Dalmia Bharat with CNBC TV-18 which aired on 12th October 2020:
• The cement sector is on the path of revival. September demand vs the previous months of July and August is much better.
• The rural areas are showing good progress due to better economy or better policies from the government. The demand is increasing on a month-on-month basis.
• Both the urban and rural areas have shown good demand in the month of September as labor issues are being sorted. Sufficient steps to ensure the safety of the people have been taken. Now, the fear is reducing and people are assuming this to the new normal and working.
• Festival season is around the corner and demand is expected to bounce back.
• There was a 10% decline YoY in the months of July and August. September was 3-5% lower than a year ago.
• The cement sector is a localized business. Demand has been good in certain regions such as the North and Eastern parts of India due to a higher percentage of rural markets in those areas. Part of Southern states are still facing challenges.
• He expects the month of October 20 to be better than October 19.
• The company has completed the acquisition of Murali Industries. The revival activities for Murali industries has started and is expected to take nine months as the company was closed for a long time.
• The acquisition of Murali Industries and capacity addition at two plants is expected to increase the total capacity to 33,000 mn tonne by March 21.

Consensus Estimate: (Source: market screener website)
• The closing price of Dalmia Bharat was ₹ 790/- as of 12-October-2020. It traded at 36x/ 25x/ 13x the consensus earnings estimate of ₹ 22/ 31.4/ 60.2 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 959 implies a PE multiple of 16x on FY23E EPS of ₹ 60.2/-.

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.”

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