Buy JK Lakshmi Cement Ltd For target of Rs 616 - Anand Rathi Share and Stock Brokers Ltd
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Expansion on track; cost pressure to peak out in Q2; retaining a Buy
More revenue on greater volumes and realisations helped JK Lakshmi’s operating profit come flat y/y amid the high-cost situation. While the cost pressures would continue in Q2, cement prices will be softer (the monsoon effect). Targeting 30m-ton capacity by FY30, the UCW expansion will be complete by FY24 taking consolidated capacity to 16.4m tons. The B/S (standalone) is guided to be net debt-free by end-FY23. We retain our Buy call, with a TP of Rs616 (Rs661 earlier).
Higher realisations aided topline. The higher realisation/ton (20% y/y) and volumes (up 4.7% y/y) boosted sales 26% y/y to Rs15.5bn. While prices were firm due to high costs, subdued demand curtailed volumes in Jun’22. Further, due to a change in the reporting method for sales of cement from purchased clinker from UCW (as conversion charges from sales), standalone realisations improved. Cement prices declined by Rs10/bag in Jul’22 due to the monsoon. The greater focus on premium cement sales and the improving share of trade cement would continue. We expect a 10% revenue CAGR over FY22-24.
Cost pressures to peak in Q2. Higher costs impacted the operating performance; EBITDA was flat y/y to Rs2.2bn and EBITDA/ton slipped 4% y/y to Rs780. The average cost of power & fuel consumed in Q1 FY23 was Rs11,400/ton (Rs9,000 the quarter prior). The cost of power & fuel was guided to rise 20% but to peak on the softening trend of pet-coke prices. We expect EBITDA to clock a 4% CAGR over FY22-24
Business outlook, Valuation. Standalone gross debt was Rs9.2bn at endJun’22; consolidated, Rs18bn. The company (standalone) aims to be net debt free by end-FY23. Arun Kumar Shukla was appointed President and Director w.e.f. 1st Aug’22. The expansion (2.5m tons cement/1.5m clinker) at UCW is on track and guided to be complete by end-FY24. The company aims at 30m ton capacity by FY30 (brownfield and greenfield).
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