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Strong volume growth

During 2QFY21, JK Lakshmi Cement (JKLC) reported strong 16% volume growth, riding on strong regional demand. Along with lower opex, this drove standalone revenue/EBITDA/APAT to grow 12/26/76% to Rs 10.45/1.87/0.81bn respectively. Robust 2Q and working capital compression aided 33% net debt reduction vs Mar’20. We maintain BUY rating on the stock with an SOTP- based target price of Rs 435/share. We like JKLC for its large exposure to the lucrative north/central markets and cost stabilisation in its east operations.

*2QFY21 performance: Sales volume rose 16% YoY (+25% QoQ) to 2.39mn MT, riding on strong demand across the north half of India. Adjusted for non-cement revenues, NSR fell 3/2% YoY/QoQ. Lower energy cost and fixed cost controls drove 6% opex reduction and led to unitary EBITDA rebounding 9% YoY to Rs 783/MT, despite lower realisation. A robust 2Q buoyed 1HFY21 EBITDA by 4% YoY to Rs 3.3bn. Working capital reduction further pushed up OCF 3x YoY to Rs 4.2bn. This helped JKLC reduce its gross/ net debt by 6/33% vs Mar’20 to Rs 13.9/6.9bn respectively.

* Outlook: We increase our standalone EBITDA estimates for FY21/22/23E by 24/8/1% respectively, factoring in better sales tractions and fixed cost controls. JKLC announced a 2.5mn MT integrated, brownfield expansion at its Udaipur Works subsidiary by end FY24E (Capex Rs 14bn). As the Capex would be spread across three years, its leverage ratio would remain comfortable, in our view. We maintain a BUY rating on the stock. Our revised target price of Rs 435/share is SOTP based. We value the standalone cement business at 8x Sep’22E EBITDA and its 73% holding in Udaipur Cement at 20% discount to current market cap.

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