Hold JK Lakshmi Cement Ltd For Target Rs. 775 - ICICI Direct
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Continuing to strive for better geo-mix…
About the stock: JK Lakshmi mainly caters to the north, west & eastern markets with a total capacity of 14.0 MT (including subsidiary). It has integrated units at Sirohi, Udaipur (Rajasthan) and Durg (Chhattisgarh) while grinding units are located at Jhajjar (Haryana), Cuttack (Odisha), Kalol and Surat (Gujarat).
* It also has a 117 MW power plant (74 MW CPP, 33 MW WHRS and 10 MW solar) that fulfils 75% of its total power requirements
* JK Lakshmi is now adding 2.5 MT cement capacity (1.5 MT clinker) through its subsidiary unit UCWL at a cost of ~| 1650 crore (expected by Q1FY25E)
* The company intends to take its total cement capacity to 30 MT by 2030
Q4FY23 Results: JK Lakshmi reported a subdued operational performance mainly owing to lower-than expected profitability.
* Revenue grew 15% YoY to | 1488.5 crore, mainly led by higher realisations, which increased 15% YoY (down 1.3% QoQ)
* Overall COP per tonne remained flattish QoQ at | 5028/t vs. our expectation of a reduction of | 200/t. EBITDA/t came in at | 616/t (Q3FY23: | 613//t)
* Absolute EBITDA declined 31% YoY (up 18% QoQ) to | 188.8 crore. PAT was at | 97.0 crore (I-direct estimate: | 129 crore)
What should investors do? While growth remain a concern till the time new capacity gets commissioned, cooling down of cost pressure along with increase in renewable energy share remain key positives for margin expansion.
* We maintain our HOLD rating on the stock
Target Price and Valuation: We value company at | 775 i.e. 8x FY25E EV/EBITDA
Key triggers for future price performance:
* With capacity annual utilisation of ~90%, volume growth to remain subdued till FY25E as the new capacity will come on stream by Q2FY25E
* Constantly striving to enhance realisations with higher focus on strengthening its geographical (geo) mix
* B/s strength to remain healthy despite ongoing capex of ~| 1650 crore for its subsidiary unit UCWL. Standalone company turned net debt free in FY23
Alternate Stock Idea: Apart from JK Lakshmi, in our cement sector coverage, we also like Ramco Cements. BUY with a target price of | 980.
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