jk cement stock price: JK Cement, Dalmia Bharat has the potential to yield 12-15% profit in 1 year. Read why

The cement industry is expected to revive thanks to rising prices and easing cost pressures. Cement prices improved across key South Indian markets in the range of Rs 10-35 per bag with the highest increase in Kerala, followed by Karnataka, Tamil Nadu and Andhra Pradesh.

The average cement price across India increased by ~2% month-on-month in October 2022, led by a 2-5% price increase in the South, East and West markets. Cement prices increased by Rs 5-20/bag MoM (2-5%) in South/East/West India, while flat in North and Central India in October 2022.

The highest increase is seen in South India (~5% MoM), followed by West (3% MoM) and East (2% MoM) in October 2022.

In the first week of November 2022, cement companies announced price increases of Rs 5-10/bag between regions. According to our channel check, cement companies are planning to do another price hike of Rs 10/bag between regions.

We believe that falling coal/coke prices will reduce costs by at least Rs 150/ton on average in the third quarter of FY 2023. Import coal price after maintaining at high level of $250-$350/ton (price Richard Bay spot) between March 2022 and October 2022 fell 19% last month.

Although the Petcoke price has increased since mid-October 2022, it is still 29% below the average price for Q1 FY 2023. The average spread will improve ~Rs300/ton for the industry in 3QFY23E; benefit from reduced energy and fuel costs and improved performance.

Cement demand will decrease slightly in October 2022 due to the early start of the festival season and is estimated to decrease by ~7-8 % YoY and ~3-4% MoM.

However, we expect demand to recover in the coming months with an improvement in labor availability, rural demand, a government push for infrastructure (supported by government spending). government before the election) and steady demand from the housing segment.

We are optimistic about the cement industry’s dynamics over the next few years due to 1) better demand outlook led by infrastructure and housing sectors, 2) increased consolidation in the industry and 3) changes regulations in the allocation of limestone blocks.

Our estimated demand CAGR of ~8% over the next three years is likely to surpass the installed capacity CAGR of 5.5%. We estimate cement demand to grow by ~10%/9% YoY in 2023/24; demand is estimated to grow ~6-7% in 2HFY23.

We prioritize regions with favorable supply-demand situation and better pricing capabilities such as north India, Gujarat and central markets.

: Buy| LTP 3,014 Rupees | Target: Rs 3,370 | 12% profit

JK Cement plans to expand its presence in central India by setting up an integrated plant in Madhya Pradesh and a split crushing unit in Uttar Pradesh.

The company is increasing its gray cement capacity by 27% to 18.7 million tons/year by the end of FY 2023, helping to achieve a CAGR of 11% in gray cement production during 2022-25E.

The company also intends to increase its gray cement capacity to 25 million tons/year in fiscal year 2025. In the period 2022-25E, we expect an EBITDA annual growth rate of 12%. The improvement in profitability of gray cement will be driven by cost-saving initiatives and improved performance with increased exposure in northern and central India.

: Buy | LTP 1,742 Rupees | Target Rs 2,000 | 15% profit

Cement demand is expected to be strong, due to the recovery of the housing market and the government’s push towards infrastructure. It aims to grow at 1.5 times the volume growth of the industry.

Dalmia Bharat is confident of reaching 49 mtpa capacity by FY2024 and has set a target of 70-75 mtpa capacity by FY2027. The share of renewable energy is likely to increase to 35% by 2025 from current level of 24%.

We expect the stock to trade at higher multiples, based on growth plans without leveraging balance sheets and cost reduction initiatives.

(Disclaimer: Author is Head – Retail Research, . Recommendations, suggestions, views and opinions expressed by experts are their own. These do not represent represent the views of the Economic Times)


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