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J K Cements Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤20th Jan 26

Summary : JK Cement delivered strong Q3 FY26 results with robust volume and revenue growth, driven by strategic expansions and improved market demand, while actively managing costs and planning further capacity additions.

Management Perspective positive : Management expressed confidence in achieving growth targets, completing expansions on time, and managing costs. They anticipate strong demand and improved pricing trends.

Concall Report Analysis & Insights

Business Overview

  1. Net sales increased by 14% quarter-on-quarter to INR 3,132 crores and 19% year-on-year for Q3 FY26.
  2. Consolidated EBITDA grew 25% quarter-on-quarter to INR 558 crores and 13% year-on-year for Q3 FY26.
  3. Grey cement volumes rose 20% quarter-on-quarter and 23% year-on-year; white business volumes increased 15% quarter-on-quarter and 13% year-on-year.
  4. Panna's 3.3 million tonne clinkerization and 3 million tonne grinding units are commissioned.
  5. Buxar Greenfield grinding unit is in advanced stages, expected to commission within 30 days.

Future Growth Prospects

  1. Remaining Panna project work, including OLBC, will be completed by February.
  2. Jaisalmer Greenfield expansion (integrated site, grinding units in Punjab/Rajasthan) is targeted for commissioning by September 2027.
  3. A 4 lakh tonne wall putty plant in Rajasthan is expected to commission by September 2026.
  4. Management targets double-digit volume growth, aiming for 22.5-23 million tonnes in FY27 and 25.5 million tonnes in FY28.
  5. Potential future Brownfield expansion in Karnataka and a 5 million tonne expansion at Muddapur are being considered.

Management Insights

  1. Q3 saw good demand, with the March quarter expected to be one of the best ever.
  2. Major volume growth is driven by Central India, with efforts to build customer base and sales across segments.
  3. Cost per Kcal has fallen sequentially due to a favorable fuel mix, increasing Indian fuel consumption in central plants.
  4. Non-trade prices have improved by INR 15-20 per bag in January across all regions, removing pressure on trade prices.
  5. The paint business is expected to achieve break-even in FY27, targeting INR 500 crore turnover.

Signs of Skepticism

  1. Management's estimate of recurring Labour Code liability impact is still being worked out, suggesting some uncertainty.
  2. The exact timeline for unlocking Panna Line 2's full 4 million tonne potential is vague, expected in the 'next fiscal end'.
  3. While non-trade prices improved, trade prices haven't seen an increase, relying on discounts restructuring.
  4. Future expansion plans beyond Jaisalmer (e.g., Muddapur) are contingent on market conditions and board approval, not firm commitments.

Risk Factors

  1. New Labour Code liability resulted in an exceptional item of INR 47.8 crores in Q3, with an estimated recurring monthly impact of INR 3-4 crores.
  2. Increased capacity additions by multiple players could lead to pricing pressure in certain markets for a quarter or two.
  3. Rising pet coke prices and rupee devaluation could increase fuel costs for new shipments.
  4. Achieving full utilization of new plants like Panna Line 2 will take time, impacting immediate efficiency.
  5. Government approvals for Toshali limestone are still in dialogue, without a fixed timeline or agreement.

Good To Know

  1. Q3 incentives were INR 60 crores, down from INR 86 crores in Q2, due to GST rate cut impact.
  2. Consolidated net debt-to-EBITDA was 1.41 as of December 31, expected to reach 1.6 by March and closer to 2 in FY27 due to CAPEX.
  3. Total CAPEX for FY26 is projected at INR 2,500-2,800 crores, with FY27 CAPEX around INR 3,500 crores.
  4. Clinker utilization rate was 97% in Q3, with a clinker production of 3.6 million tonnes.
  5. The company's CC ratio is 67%, with a complete clinker backup for cement capacity.

Key Drivers

  1. New capacities commissioning will drive volume growth.
  2. Improved non-trade pricing supports overall realizations.
  3. Strategic expansions strengthen market footprint.
  4. Cost-saving initiatives enhance operational efficiency.

Key Analyst Discussions

Competitive Environment

  1. Analysts asked about pricing discipline and trends given multiple capacity additions in North India.
  2. Management believes demand growth will absorb new capacity, limiting major pricing pressure.
  3. The company aims to consolidate its position and achieve mid-high market share in new and existing regions.
  4. Discussions included the impact of non-trade pricing on trade prices and competitive marketing strategies.

Market Trends & Consumer Behavior

  1. Demand trends for the next two to three quarters were discussed, with good demand expected.
  2. Non-trade demand is expected to improve, aligning with overall cement consumption growth.
  3. Pricing improvements of INR 15-20 per bag in non-trade were noted across all regions in January.
  4. The North market saw record volumes in December, indicating strong demand.

Financial Highlights

  1. Analysts inquired about Q3 incentives, which were INR 60 crores, lower due to GST rate cut.
  2. Questions were raised on the sharp decline in other expenses, attributed to lower marketing and branding costs.
  3. CAPEX projections for FY26 (INR 2,500-2,800 cr), FY27 (INR 3,500 cr), and FY28 (INR 1,000-1,200 cr) were discussed.
  4. Management clarified fuel cost reduction due to mix shift towards cheaper Indian coal in central plants.
  5. The recurring impact of the new Labour Code liability is estimated at INR 3-4 crores monthly.

Product Composition

  1. Questions addressed the non-trade share and premium product percentage.
  2. Premium product percentage increased to 17.3% in Q3 from 14.9% in Q2.
  3. Incremental volumes have gone into non-trade, but premium brand volumes increased in absolute numbers.

Strategic Considerations

  1. Analysts questioned the volume growth target for FY26, which remains at 20 million tonnes.
  2. Discussions covered the commissioning timeline for Panna Line 2 and Buxar grinding unit.
  3. Management provided an update on the Jaisalmer Greenfield expansion and future Muddapur plans.
  4. The paint business's profitability and break-even target in FY27 were discussed.
  5. Updates on Toshali limestone engagement with the government were sought.