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Decent Performance despite Higher Input Cost; Maintain BUY
While JK Lakshmi Cement (JKLC) surprised on volume front in 4QFY19 with a stupendous 32% YoY and 28% QoQ growth in sales volume to 2.94mnT, operating performance missed our estimate mainly led by soft realisation. EBITDA grew by 30% YoY and 34% QoQ to Rs1.31bn marginally below our estimate of Rs1.37bn, while EBITDA/tonne came in at mere Rs447 as against Rs454 in 4QFY18 and Rs426 in 3QFY19. Average realisation declined by 1.7% QoQ to Rs3,989/tonne (-0.7% YoY).. Despite higher input cost, its operating cost/tonne declined by 2.4% QoQ to Rs3,643. Freight cost/tonne declined by 12% YoY and 6% QoQ to Rs939. Net profit zoomed by 28% YoY and 193% QoQ to Rs433mn vs. our estimate of Rs427mn. We increase our EBITDA estimate by 10%/ 8% for FY20E/FY21E mainly to factor in recent up-tick in realisation and higher volume. We continue to remain positive on JKLC considering the initiatives undertaken to improve operating efficiency in the Eastern markets and attractive valuation. Hence, we maintain our BUY recommendation on the stock with a revised Target Price of Rs450 (from Rs390 earlier).
Robust Volume Aids Revenue
JKLC’s revenue grew by a strong ~31% YoY (+25% QoQ) to Rs11.7bn mainly led by a healthy 32% YoY growth in sales volume to 2.94mnT (including clinker of 0.21mnT). Further, JKLC’s RMC revenue stood at Rs410mn in 4QFY19 and Rs1.63bn in FY19. Trade sales accounted for 55% of total sales in FY19. Looking ahead, we expect JKLC’s sales volume to clock 6% CAGR through FY19-FY21E. The Company expects its sales volume to grow in higher single-digit in FY20.
Soft Realisation & Higher Input Cost Impact Operating Performance
While robust sales volume was quite impressive, 1.7% QoQ decline in average realisation and 5% QoQ surge in input cost/tonne restricted growth in operating profit. EBITDA grew by 30% YoY below our estimate of Rs1.37bn. EBITDA/tonne came in at mere Rs447 as against Rs454 in 4QFY18 and Rs426 in 3QFY19. We note that higher clinker purchase during the quarter (0.15mnT) led to higher input cost despite reduction in unitary Power & Fuel cost. We expect JKLC’s operating performance to improve in subsequent quarters mainly led by improved realisation.
Outlook & Valuation
In light of the initiatives undertaken to improve operations by means setting up of 20MW CPPs in Durg and SGU in Odisha along with realisation up-tick, we expect JKLC’s operating performance to witness improvement from FY20E onwards. Further, debt reduction of Rs4bn in FY19 bodes well for JKLC, which is likely to improve its return ratios considerably. Notably, current valuations at 6.8x EBITDA and US$55 EV/tonne for FY21E look attractive. Hence, we maintain BUY recommendation on the stock with a revised Target Price of Rs450 (8x of FY21 EBITDA)
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