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/-
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