IGI Logo

Buy JK Lakshmi Cement Ltd For Target Rs.800

Beat on volumes; pressure on margins…

About the stock: JK Lakshmi mainly caters to the north, west & eastern markets with total capacity of 13.3 MT (including subsidiary). It has integrated units at Sirohi, Udaipur (Rajasthan) and Durg (Chhattisgarh) with grinding units at Jhajjar (Haryana), Cuttack (Odisha), Kalol and Surat (Gujarat).

* It also has 105 MW power plant (74 MW CPP, 21 MW WHRS and 10 MW solar) that fulfils 75% of its total power requirement

* The company is now adding 2.5 MT cement capacity (1.5 MT clinker) through its subsidiary unit UCWL at a cost of | 1400 crore.

Q1FY22 Results: Results remained ahead of our estimates led by better sales volume. However, there was disappointment on the margin front.

* Revenues were down 6.8% | 1231.5 crore led by sales volumes de-growth of 9.6% to 2.66 MT. On a YoY basis, revenues were up 49.2%

* EBITDA/t was down 10.8% QoQ to | 813/t (vs. last quarter’s EBITDA/t of | 911/t). EBITDA margin was at 17.5%, down 272 bps QoQ (flat YoY)

* PAT of | 118.7 crore was down 13% QoQ vs. (our estimate: | 95 crore).

What should investors do?

JK Lakshmi’s share price has grown by ~2.5x over the past three years (from ~| 331 in August 2018 to | 816 in July 2021).

* We remain positive on the company and maintain our BUY rating

Target Price and Valuation: We value the stock at | 800 i.e. 9.5x FY23E EV/EBITDA.

Key triggers for future price performance:

* With expected utilisation of 94%+ for FY22E, we expect operating leverage benefit to continue led by fixed cost rationalisation

* WHRS of 10 MW to get commissioned by Q3FY22. This should help contain the power cost

* B/s strength to remain strong despite newly announced capex of ~| 1400 crore for its subsidiary unit UCWL.

Alternate Stock Idea: Apart from JK Lakshmi, in our cement sector coverage, we also like another north based player Mangalam Cement.

* The upcoming UP election along with enhanced clinker capacity is expected to drive growth. Benefit of various incentives would provide cost advantage.

* BUY with a target price of | 600/share.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer