The street has welcomed JK Cement’s move of adding more capacity in these strategic locations. The stock hit a new 52-week high of ₹2428 on the NSE on Wednesday.
Regional cement manufacturer JK Cement Ltd posted decent earnings in the December quarter. A key highlight was its year-on-year cement volume growth of 25% to 2.76 million tonnes, which was aided by recently added capacities. Further, the management has approved setting up a greenfield 4 mtpa cement capacity in central India. Mtpa is short for million tonnes per annum.
“Expansion in this market improves the company’s volumes growth visibility and should strengthen the regional mix by reducing the share of southern India,” said the company. In a post-earnings conference call, the management said, this capacity addition would help JK Cement expand its reach across central India, spanning Uttar Pradesh and Madhya Pradesh. Currently, it is present only in western parts of these states. The management expects demand growth of 6% in central India over the medium term, which would mean smooth absorption of the slew of capacity expansions by other companies.
“After expanding its capacity in North by 4.2mtpa, which is still being ramped up, JK 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 the 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,” analysts at Motilal Oswal Financial Services Ltd said in a report on 9 February.
Speaking of costs, the management said the consumption cost of petcoke was up ₹1,200 per tonne quarter-on-quarter and stood at ₹8,800 in 3QFY21. It has inched up further by ₹1,000 a tonne in 4QFY21. To mitigate the impact of rising petroleum coke prices 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.
Meanwhile, JK Cement aims to achieve around 10% growth in its putty segment over the medium-term in spite of rising competition. It should be noted that key paint manufacturers have increased their focus on capturing the putty market.