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Result Synopsis

JK Lakshmi Cement (JKLC) reported mixed-bag performance, delivered 4% higher than anticipated revenue, but elevated cost translates to a 20% miss on EBITDA in Q3FY23. Revenue grew by 25% y/y to Rs14.9bn (YSECe Rs14.3bn) owing to volume & NSR growth of +6% & +18% y/y. EBITDA increased by 9% y/y to Rs1.6bn with EBITDA margins of 10.7%, a dip of 155bps y/y. Total cost increased by +20% y/y (11% above YSECe) mainly due to elevated power & other cost per tonne by +40% & +15%y/y,respectively. Elevated cost largely mitigated by blended NSR resulted in an EBITDA/te growth of +3% y/y to Rs613/te. JKLC reported adj PAT growth of +24% y/y to Rs736mn (30% below YSECe).

On a standalone basis, JKLC’s utilization level inched up to 74% in FY22 and expected to reach +84% by FY25E. Thereby to overcome the volume growth concerns, JKLC has embarked on the next phase of expansion in its owned subsidiary, UCWL (2.5MTPA cement and 1.5MTPA clinker). Given the announced expansion, JKLC’s capacity share of north will increase to ~62% of console capacity (v/s ~52% currently) would be margin accretive for JKLC aided by higher north NSR share. JKLC aims to increase green energy share to ~50% by FY24E through 1) upcoming 15MW WHRS 2) enhancing the TSR from 4% to 12%in Sirohi Plant 3) tied-up with a private player for supply of 40MW Solar Power for its Durg Plant. Going forward, we believe JKLC will generate a OCF of ~Rs23.8bn on a standalone basis and UCWL will add Rs2-3bn over FY23-25E should support the B/S against ongoing capex of 16.5bn on console level. Hence, Net debt/EBITDA should remain at a comfortable level on a console basis and expected to turn net cash by FY24E on standalone basis. At CMP, stock trades at 8x and 6x on EV/EBITDA for FY24/25E. We value JKLC on SOTP basis; as standalone entity we continue to value at 7x EV/EBITDA on FY25E, while its subsidiary UCWL valued at US$80 EV/te on FY25E arriving at a TP of Rs881 with an ADD rating.

Result Highlights

* Revenue came in at Rs14.9bn (4% above YSECe) up by 25% y/y and 14% q/q led by volumes & NSR growth of +6% & +18% y/y (+13% & +1% q/q) ? EBITDA grew by 9% y/y and 15% q/q to Rs1.60bn (v/s Rs1.99bn YSECe) with EBITDA margins contracting by 155bps y/y to 10.7% (below YSECe of 13.9%)

* Total cost increased by +20% y/y and +1% q/q (11% above YSECe) mainly due to elevated power and other cost/te by +40% & +15% y/y respectively.

* Higher NSR mitigated the elevated cost resulted in EBITDA/te growth of +3% y/y and +2% q/q to Rs613/te (v/s YSECe of Rs740/te)

* Adj PAT came in at Rs736mn (v/s YSECe of 1.06bn), increased by +24% y/y and +25% q/q.

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