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B/s to strengthen further; maintain BUY!

JK Lakshmi Cement operated at full capacity in Q4 with 101% capacity utilisation led by improved sales volume from both retail & infra segment. Total sales volume grew 17.6% YoY to 2.9 MT. Realisation was also up 5.9% YoY, 3.0% QoQ to | 4,559/tonne (vs. I-direct estimate: | 4,413/t). This led to revenue growth of 24.6% YoY to | 1,322 crore (vs. I-direct estimate: 1,226.2 crore). EBITDA margins came in at 20.3% (vs. I-direct estimate: 14.8%) and EBITDA/tonne of | 924/tonne, ahead of our estimated EBITDA/t of | 653/t despite 4.3% YoY increase in costs. After accounting for impairment loss of | 30.9 crore, PAT grew 35.5% YoY to | 136.5 crore while adjusted PAT growth was at 66.2% YoY on lower interest costs. The progress on the WHRS Unit III Project at Sirohi is as per schedule and will be commissioned by July 2021. The company's subsidiary Udaipur Cement is expanding its cement capacity by 2.5 MT, which would commissioned by December 2023E. Post this, its consolidated capacity will get enhanced to 16.4 MT

Levers for healthy margins in place…

Being predominantly a north (8.2 MT) and central (3.5 MT) player, the company has got structural advantage of balanced environment in these two high growing regions. Further, self-sufficiency in power, through captive power plant (CPP) of 54 MW, waste heat recovery (WHR) plant of 14 MW and solar power plant of 6 MW have helped the company to reduce reliance on costly grid power. The progress on WHRS Unit-III Project at Sirohi (8 MW) is as per schedule and will be commissioned by July 2021. In eastern region, the company has 7 MW WHR plant and has recently commissioned CPP of 20 MW to become self-sufficient. To reduce freight cost, it has added 0.8 MT grinding unit in FY20 in Odisha. Proximity to market and self-sufficiency in power would continue to ensure improved cost efficiency, going forward.

To add another 2.5 MT cement capacity by FY24E

With capacity utilisation reaching over 99% in Q4FY21 and 85% for the full year, the company will now be adding cement capacity of 2.5 MT (1.5 MT clinker) at its existing plant in Udaipur with total capex of | 1400 crore. The same is likely to get commissioned by the end of Q3FY24E. Ramp up of capacities in Durg in the past four years has led to co-generation of annual OCF of over~| 400 crore. Further, with liquidity buffer of | 726 crore, we believe the company is in a better position to fund this new expansion.

Valuation & Outlook

While the company may remain laggard in terms of growth in FY21-23E due to delayed capacity expansion (likely commissioning Q3FY24E), the focus on strengthening b/s with significant debt reduction in FY22E remains a key positive. Given the constructive outlook, we maintain our positive stance on the company on expected strong OCF over the next two years. Hence, we maintain our BUY rating with a revised TP of | 575/share (earlier | 470) (@ 7x FY23E EV/EBITDA, $70/t)

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