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Better market mix to aid profitability

JK Lakshmi Cement’s (JKLC) Q3FY22 standalone EBITDA of Rs1.5bn (down 24% YoY) was broadly in line with our estimate. Volumes including clinker sales declined 9% YoY (up 6% QoQ) due to transporters’ strike in Chhattisgarh and a steep fall in demand in Nov’21 in most of its markets. Realisation improved 10% YoY (flat QoQ), primarily led by strong pricing YoY in its core markets of North and West mainly to mitigate cost escalations. Total cost/te increased 14.6% YoY and 3.2% QoQ owing to higher input prices, resulting in EBITDA/te declining 16% YoY (15% QoQ) to Rs595/te (I-Sec: Rs622). We maintain our BUY rating with a revised target price of Rs700/sh (earlier: Rs715/sh) based on 8x FY24E EV/E. Key risks: lower demand / pricing

Standalone revenues were flat YoY at Rs11.9bn, in line with our estimate. Total volumes (including 0.23mnte clinker) declined 9% YoY (up 6% QoQ) to 2.46mnte (ISec :2.48mnte) due to (i) transporters’ strike in Chhattisgarh which halted dispatches for 17 days during the quarter and (ii) a steep fall in demand in Nov’21 in most of its markets. Blended realisation rose 10% YoY (flat QoQ) to Rs4,853/te owing to higher prices in its core markets of North and West to mitigate cost escalations.

Standalone EBITDA/te declined 16.3% YoY to Rs595/te (I-Sec: Rs622). Total cost/te increase was restricted to 3.2% QoQ (and 14.6% YoY) to Rs4,258/te. Raw material plus power & fuel costs/te increased 19.5% YoY and 5.4% QoQ owing to higher fuel prices. Freight cost/te rose 12.2% YoY and 3.7% QoQ owing to an increase in diesel prices. Other expenses/te increased 5% YoY (marginally down QoQ), likely led by higher packing costs

Consolidated revenues grew 2% YoY to Rs12.9bn, while EBITDA declined 24% YoY to Rs1.7bn. Total volumes (including 0.27mnte clinker) declined 6.7% YoY (up 5.9% QoQ) to 2.6mnte, while realisation rose 9.4% YoY (flat QoQ) to Rs4,918/te. Total cost/te increased 15.5% YoY and 3.5% QoQ to Rs4,254, resulting in consolidated EBITDA/te declining by 18.5% YoY to Rs664/te. PAT (adjusted for taxes pertaining to earlier years of Rs156mn) declined 30% YoY to Rs797mn. UCWL’s revenues were up 13% YoY and 5% QoQ at Rs2.1bn, while its EBITDA declined 23% YoY to Rs279mn

UCWL had earlier announced brownfield expansion whereby it plans to double its clinker capacity from 1.5mnte to 3mnte and increase its cement capacity by 2.5mnte to 4.7mnte at a capex of Rs14bn to be funded through debt: equity mix of 2:1. Clinker capacity is expected to be commissioned in Oct’23 and the split location is expected to be operational by Mar’24. UCWL’s board has approved fundraising through term loans/NCDs, on private placement basis, up to an amount of Rs8.5bn for financing phase 1 of UCWL’s expansion. The company had consolidated net debt of R9.6bn as on Sep’21 and the same is unlikely to increase even after the said expansion.

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