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Eyeing four-digit EBITDA/te; ripe for rerating

JK Lakshmi Cement’s (JKLC) Q4FY21 standalone EBITDA at Rs2.7bn (up 33% YoY) was significantly above consensus estimates. Realisation surprised with 3% QoQ increase while costs/te declined 2.3% QoQ resulting in EBITDA/te increasing 30% QoQ to Rs922/te (I-Sec: Rs815/te). At the consolidated level, JKLC reported a decade-high EBITDA/te of Rs1,031/te. Consolidated net debt declined by Rs6.6bn YoY in FY21 to Rs8.4bn. Factoring-in the improved realisation, we raise our FY22EFY23E EBITDA by 7-8% and increase the target price to Rs625/sh (earlier: Rs475/sh) based on 7x FY23E EV/E on half-yearly rollover. Maintain BUY. Valuation at 5.6xFY23E EV/E is attractive, in our view. Key risks: Lower demand / pricing.

* Standalone revenues grew 25% YoY to Rs13.2bn (I-Sec: Rs14.4bn). Total volumes (including clinker) increased 18% YoY to 2.9mnte (I-Sec:3.2mnte). Blended realisation rose 3% QoQ / 5.7% YoY to Rs4,552/te owing to higher prices in North and some states in East as well as increase in the share of premium products, up 500-600bps YoY, as a percentage of trade sales (32% in Q4FY21). As per management, demand in Apr’21 and May’21 has been impacted due to covid resurgence and is likely down ~30% QoQ vs the usual 10-15% decline in the same period every year. Urban and infrastructure demand remains better.

* Standalone EBITDA/te up 13% YoY to Rs922/te (I-Sec: Rs815/te). Despite higher input prices, the company’s profitability improved on the back of higher realisations, improved efficiencies and operating leverage. Total cost/te increased 4% YoY and declined 2% QoQ to Rs3,630/te. Raw material plus power & fuel costs/te declined 2% QoQ owing to low-cost fuel inventory. However, management stated that FY22 will get impacted by higher fuel prices as the company extinguished its low-cost inventory in Q4FY21 (recent contracts have been booked at US$95/te). Freight cost/te increased 4% QoQ and 8% YoY owing to increase in diesel prices. Other expenses and employee costs/te declined 9% QoQ and 3% YoY.

* Consolidated revenues grew 25% YoY to Rs14.2bn while EBITDA and PAT increased 34% YoY and 92% YoY to Rs3.1bn and Rs1.9bn respectively. Consolidated volumes rose 15% YoY to 3.0mnte with 16% YoY increase in EBITDA/te to Rs1,031/te. UCWL’s EBITDA increased by 38% YoY to Rs454mn in Q4FY21. Consolidated net debt declined by ~Rs6.6bn in FY21 to Rs8.4bn on strong OCF generation of Rs8.3bn aided by working capital release of Rs2bn in FY21 and after incurring Rs1.7bn capex.

* UCWL’s ongoing expansion is expected to complete by end of Q1FY22, thereby increasing the clinker capacity from 1.2mnte to 1.5mnte, and cement capacity from 1.6mnte to 2.2mnte. Financial closure for brownfield expansion project at a capex of Rs14bn (1.5mnte clinker unit, 2.5mnte grinding unit and WHRS of ~7MW) is expected by Sep’21 and the project is expected to be commissioned by Dec’23.

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