JK Cement (NS:)
We maintain our REDUCE rating on JK Cement (JKCE), with an unchanged TP of INR 2,755 (11x Mar-25E consolidated EBITDA). In Q1FY24, JKCE reported strong 29% YoY grey cement volume growth on a healthy ramp of its Panna capacity (75% utilization). Fuel cost cooled off by INR 150/MT QoQ in Q1, thus driving grey unit EBITDA recovery by INR 130/MT QoQ in Q1.
We expect 15% YoY consolidated volume growth in FY24, led by the fast ramp-up of Panna IU in the central region. We estimate ~INR 210/MT YoY improvement in margins in FY24, owing to the sharp cool-off in fuel cost and a greater share of green power. The upcoming expansion in UP and MP will increase grey cement capacity to 24mn MT in FY25E.
Vinati Organics Ltd (NS:)
Our SELL recommendation on Vinati Organics (VO) with a discounted cash flow-based target price of INR 1,544 (WACC 11%, terminal growth 5%) is driven by (1) a shift in the revenue mix towards lower-margin butyl phenol and other products as compared to ATBS, which has a higher margin and (2) the fact that in FY24, destocking by customers shall result in low offtake of ATBS. Molecules that are contributing ~60% in revenue are showing either weakness in demand or muted growth in FY24.
Other molecules that contribute 40% in revenue will show strong performance but margins of these molecules are lower compared to margins of major products. We believe the current valuation is contextually high at ~35.2x FY25E EPS. Q1 EBITDA/APAT were 24/23% below our estimates, owing to lower-than-anticipated revenue.
KNR Constructions Ltd (NS:)
KNR reported weak revenue/EBITDA of INR 9.3/1.7/, missing our estimates by 6%/3%. APAT, however, at INR 1.1bn beat our estimate by 6.5%. KNR maintained its FY24 revenue at INR 40bn+, with an EBITDA margin decreasing by 200-250bps from the FY23 margin (at 18.6%) on likely delay in payments in irrigation projects due to the general election. The OB as of Jun’23 stood at INR 62.7bn with no new orders recorded during the quarter. It is targeting INR 40-50bn in new orders for FY24.
The total project pipeline stands at INR 450bn, of which INR 220-250bn corresponds to NHAI/road orders and the rest are irrigation projects. Within the irrigation project, KNR is looking for partnership and is in talks with some partners (Patel Engineering (NS:), NCC (NS:) and SEW) for mainly water pipeline-related work. Given the aggressive competition, the company is looking at projects from different segments like state highways, metro, railways and irrigation.
The balance HAM equity requirement is INR 4.04bn as of Jun’23, of which INR 1.5/1.6/0.22bn will be infused in FY24/25/26. In addition, the three new projects won require a total equity infusion of INR 2.3bn, with 50%/25%/25% scheduled to be infused in FY25/26/27 resp. At the standalone level, KNR continues to enjoy a strong net cash position of INR 1bn. We maintain BUY with an increased TP of INR 329/sh (roll-over to 18x Jun-25E EPS, HAM 1x P/BV).
Ahluwalia Contracts (India) Ltd (NS:)
Ahluwalia Contracts (AHLU) reported weak revenue/EBITDA/APAT of 8/0.8/0.5bn, missing at all levels. AHLU maintained its top-line growth of 20% YoY in FY24, with EBITDA margin (incl. other income) expected upwards of 11%. The order book (OB) as of Jun’23 stood at INR 118bn, excluding L1 in one private project worth INR 28bn (international jewellery park in Mumbai). The OB is well-diversified, with government/private orders comprising 75/25% of OB and West/North/East/South/Overseas regions contributing 38/31/25/3/3% to it.
Segment-wise, infrastructure and institutional are the major drivers, contributing 31.5/24.7%, with hospital/residential/commercial/hotels contributing 21/14/9/1%. 30% of the OB of INR 82bn is fixed price contracts. The total order inflow in FYTD24 has been INR 43.8bn. AHLU has a bid pipeline amounting to INR 25bn and expects a slowdown in ordering in FY24 on account of the general election in 2025. Recent stock performance offers limited upside to our target price we change our stance from BUY to ADD, with an increased TP of INR 741 (14x multiple Jun-25E EPS).
