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A Sensible Bet on Mid-Cap Cement Space
JK Cement (JKCE) has recently published its FY19 Annual Report. We tried to analyse it in the context of increasing capex, impacts on cash flow positions and persistent lacklustre performance of its UAE operations. Followings are the key takeaways of the Annual Report
Cement Clinker Ratio Remains Flat at 1.37x; Further Improvement on the Cards
With the clinker production and sale at 6.35mnT and 0.22mnT, respectively, JKCE’s cementclinker ratio broadly maintained at 1.37x (1.39x in FY18). We note that it maintained blended cement sales at 60%. Going forward, as the new SGUs in Aligarh (1.5mnT) and Silvasa (0.7mnT) are likely to produce mainly PPC, we expect its cement clinker ratio to improve in the ensuing years, thereby aiding further operational efficiency of the Company.
Cash Generation Remains Healthy; Rs1bn FCF despite Rs6bn Capex
Interest-adjusted OCF continued to remain strong at Rs4.9bn (~Rs4.5bn at consolidated level) in FY19 vs. Rs5.5bn in FY18 amid soft realisation scenario. FCF stood at Rs1bn in FY19 (vs. ~Rs6bn in FY18), which we believe is healthy given higher capex during the year. Considering recent realisation recovery, we expect its OCF (adjusted for interest) at Rs6.5bn. However, its FCF is likely to be negative at Rs4.4bn in FY20E led by Rs13.5bn capex. Notably, it is expected to be at positive Rs6.7bn in FY21E.
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