As Investor Cheer Capacity Expansion, JK Cement Enjoys Fresh 52-Week High

As Investor Cheer Capacity Expansion, JK Cement Enjoys Fresh 52-Week High

Highlights:

  • JK Cement hits new 52-week high
  • JK Cement approves setting up of new 4 MnTPA cement capacity in Central India
  • JK Cement stock traded at ₹ 2,428 on Wednesday

Regional cement producer JK Cement Limited posted a rather decent earnings in the quarter which ended in December 2020 in which a key highlight was its Year-on-Year cement volume growth of 25% to 2.76 million tonnes which has been aided by the recently added capacities.

Additionally, the management approval of setting up a greenfield 4 MnTPA cement capacity in central India has cheered up its investors.

MnTPA stands for Million Tonnes Per Annum.

As per analysts, the expansion in the market will improve JK Cement Limited’s volume growth visibility and also should result in the strengthening of the regional mix by reducing the share of southern India. However, they said that investors should note that this region has been struggling with a situation of oversupply of cement amidst a muted demand.

Having said this, the demand is completely opposite in northern and central India. Consequently, the pricing environment in the northern and the central side of the country is better than in other regions.

The Street has welcomed the move from JK Cement Ltd. of adding additional capacity in these strategic locations. On Wednesday, the stock of the company hit a new 532-week high as it traded at ₹ 2,428 on the National Stock Exchange (NSE).

In a post-earnings conference, the management of JK Cement said that the added capacity will help the firm expand its reach across Central India covering both Madhya Pradesh and Uttar Pradesh.

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As of now, the company only has its presence in the western states.

The management expects a growth in demand of 6% in central India over the medium term, which would mean smooth absorption of a slew of capacity expansions by the others companies.

An analyst at Motilal Oswal Financial Services Ltd said, “After expanding its capacity in North by 4.2mtpa, which is still being ramped up, JKCE has announced another lucrative 4mtpa expansion in Central. These expansions bring three significant advantages to the company: (i) they strengthen its market share in North and Central, the most attractive regions in the country; (ii) they reduce the share of South in the volume mix to just ~12%; and (iii) they lower costs as ~90% of the grey cement capacity post expansion would be fuel-efficient,” in a report on the 9th of February.

Talking about the cost, the management said that the consumption cost of petcoke (Petroleum coke) was up ₹ 1,200 per tonne quarter-on-quarter and stood at ₹ 8,800 in the third quarter of FY21. It has inched up further by ₹1,000 a tonne in the fourth quarter of FY21.

In order to to mitigate the impact raised by the increase in prices of petroleum coke on margins, the company has increased the proportion of imported coal in the kiln fuel mix. But the management expects its power and fuel cost to rise by ₹ 80/tonne going ahead.

In the meantime, the cement producer is aiming to achieve close to 10% growth in its putty segment over medium-term in spite of the rise in competition. One thing to note is that the key paint manufacturers in the country have now increased their focus on capturing the putty market.

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Ajay Kumar

Ajay joined our team as a content writer after earning his master's degree. He has been writing for since his graduation as a freelancer and raises voice for the people in need with his work. He likes to work on data-driven news reports. When he is not writing, he spends his time with his family.

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