JK Cement has been in the spotlight recently as its stock price has surged by nearly 40% over the past year. This impressive performance is a result of consistent growth in its financial results, even in the face of tough market competition. As the company continues to strengthen its position, the question arises: is it a good opportunity to invest now?
Strong Financial Performance Amid Market Challenges
JK Cement has shown solid performance over several quarters, with sales growing by 2% year-on-year (YoY) in the June 2023 quarter, reaching ₹2,653 crore. A key driver behind this growth was a 6% YoY increase in grey cement volumes. However, despite the solid growth, the company’s realization was impacted due to falling cement prices.
Yet, JK Cement has managed to navigate this challenge well. The reduction in power and fuel costs helped the company maintain healthy margins, and its operating profit jumped by 19% YoY, totaling ₹479 crore in Q1 FY24.
Cement Demand May Remain Soft Until Festival Season
The first quarter of the financial year is typically sluggish for the cement industry due to several external factors. This year, extreme heat and the Lok Sabha elections further dampened demand for cement. The July-September quarter is also expected to see limited demand due to monsoon rains. However, the management expects a rise in demand after the festive season, with growth likely to be driven by the infrastructure and housing sectors.
Declining Cement Prices Put Pressure on Revenue
Cement prices have been on a downward trend for several months, and this trend continued in the second quarter as well. Increased capacity among companies has led to more competition, which in turn, has affected pricing.
Additionally, the availability of sand and labor has been low, which has further impacted revenue generation. However, the company has benefited from stable power and fuel costs, which have remained around $110-115 per ton over the last few quarters.
Expansion Plans: Prayagraj Plant to Boost Production
JK Cement has big plans for future growth. Production at its Prayagraj plant is expected to start next quarter, which will add significant capacity to its grey cement output. The company is also increasing its spending on branding and focusing on green energy, which could boost its sustainability profile.
The company’s capacity stood at 24 million tonnes at the end of June 2023, and with additional investments, it plans to raise its capacity to 30 million tonnes by FY26.
Is Now the Right Time to Invest in JK Cement?
JK Cement has announced a capital expenditure of ₹1,900 crore for FY25, aiming to support its expansion efforts. The company has a strong market presence in the northern and central regions of India, and its growth outlook remains positive. However, given the stock’s recent surge and high valuation, investors may consider waiting for a price correction before increasing their investment.
