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NSR improvement to drive revenue growth

Result Synopsis

JK Lakshmi Cement (JKLC) reported mixed bag performance, where volume came in-line, but NSR below estimate resulted in EBITDA/te miss. In Q4FY23, the capacity utilization stood at ~89% caused volume de-growth of 3% y/y, however 19% y/y surge in NSR aided revenue to grow by 15% y/y. On standalone basis, utilization reaching to 85-90% leaves little room for volume growth hence we modeled it for ~4% CAGR over FY24-25E and incremental revenue growth will be guided by the NSR. EBITDA/te confined to Rs617 as total operating cost remained elevated with a minor correction sequentially. However, margins are expected to improve (+Rs950/te) with the easing of operating cost and improving NSR (product mix/premiumization) by FY25E.

To address the volume growth concerns, JKLC has embarked on the next phase of expansion in its owned subsidiary, UCWL (2.5MTPA cement and1.5MTPA clinker). With this expansion, JKLC’s console capacity share of north will increase to ~62% (v/s ~52% currently), which will be margin accretive as north has strong NSR compared to other regions. JKLC aims to increase green energy share to ~50% by FY24E through 1) upcoming 15MW WHRS 2) enhancing the TSR from 4% to 16% in Sirohi Plant 3) tied-up with a private player for supply of 40MW Solar Power taking RE share to 80% v/s 50% for Durg Plant. Going forward, we believe JKLC will generate a OCF of ~Rs17.6bn on a standalone basis and UCWL should add Rs1-2bn over FY24-25E will support the B/S against ongoing capex of 16.5bn on console level (Rs11/5.5bn by debt/equity). Hence, Net debt to EBITDA is expected to remain at a comfortable level on a console basis, while JKLC turned net cash in FY23 on standalone basis. At CMP, stock trades at 8x and 6x on EV/EBITDA for FY24/25E. We value JKLC on SOTP basis; continue to value standalone entity at 7x EV/EBITDA on FY25E, while its subsidiary UCWL valued at US$80 EV/te on FY25E arriving at a TP of Rs863 with an ADD rating.

Result Highlights

* Revenue came 2% below YSECe to Rs17.2bn (Rs60.7bn in FY23) up by +15% y/y and +16% q/q as NSR increase by +19% y/y aided to mitigate the impact of volumes de-growth of 3% y/y in Q4FY23.

* Total cost came as expected, grew by +29% y/y although corrected marginally q/q. As a result, EBITDA/te confined to Rs617 (flat q/q) declined by 30% y/y.

* EBITDA came at Rs1.89bn (15% below YSECe) declined by 31% y/y, although grew by 19% q/q translates in 10.9% of EBITDA margin (flat q/q) in Q4FY23.

* Similarly, reported PAT came in at Rs973mn declined by 43% y/y (v/s Rs1.1bn YSECe) but up by 32% q/q in Q4FY23.

* For FY23, EBITDA/PAT declined by 12% and 22% y/y to Rs7/3.3bn.

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