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Strong performance led by higher volume and realization

Adding grinding capacity (brownfield expansion) of 1.35mtpa at Surat

* J K Lakshmi Cement’s (JKLC) 2QFY24 operating performance was above our estimates, with consolidated EBITDA at INR2.2b (up 33% YoY; 20% above our estimate). EBITDA/t increased 16% YoY to INR755 (est. INR657). OPM was up 2pp YoY at 14%. PAT increased 55% YoY to INR959m (est. INR756m).

* Management indicated that cement volume growth (consolidated) should be at 12-15% YoY in FY24 (earlier guidance of 19%). The Eastern region saw the highest YoY growth during the quarter and is likely to continue to grow at ~8-10% YoY. Cement prices have risen in various key markets at different points in time. The company anticipates an average improvement in realization by INR50-100/t QoQ in 3QFY24.

* We largely maintain our FY24E/FY25E earnings estimate. JKLC is trading at 8.8x/7.3x FY24E/FY25E EV/EBITDA. JKLC is a cost-efficient player with presence in favorable regions (Gujarat and North). We value JKLC at 9x Sep’25E (earlier FY25E) EV/EBITDA to arrive at our revised TP of INR930 (INR790 earlier).

Consolidated volume grew 14% YoY and realization was up 1% YoY

* Consolidated revenue/EBITDA/PAT stood at INR15.7b/INR2.2b/INR959m (up 15%/33%/55% YoY and up 6%/20%/27% vs. our estimates). Sales volume rose 14% YoY to 2.88mt (up 4% vs. our estimate). Realization was up 1% YoY to INR5,471/t (1% above our estimate).

* Opex/t declined 1% YoY, driven by a 2%/5% decline in variable costs/other expenses. Freight cost/t rose 2% YoY, while Employee costs/t declined 2% YoY. OPM was up 2pp YoY to 14% and EBITDA/t was up 16% YoY to INR755 in 2QFY24.

* In 1HFY24, consolidated revenue grew 9% YoY to INR33b, mainly driven by volume growth (up 9%) as realization remained flat. EBITDA declined 2% YoY to INR4.1b due to higher opex/t, up 1% YoY. EBITDA/t declined 10% YoY to INR680 and OPM contracted 1.4pp YoY to 12.5%.

* CFO stood at INR2.7b vs. outflow of INR468m in 1HFY23, led by an increase in working capital. Capex stood at INR5.1b vs. INR3.3b in 1HFY23. Net-debt increased to INR11.8b vs. INR10b as of Mar’23

Highlights from the management commentary

* Clinker/cement capacity utilization (standalone) stood at 100%/73% in 2QFY24. The company’s trade cement mix increased to ~62% vs. 58% in 1Q.

* Average fuel cost was at INR2.04/Kcal vs. INR2.23/Kcal in 1QFY24. It is expected to decline up to INR1.90/Kcal in 3QFY24.

* It announced brownfield expansion of 1.35mtpa grinding capacity at its GU in Surat, Gujarat, at an estimated capex of INR2.25b. The Surat market exhibits promising demand prospects and pricing, resulting in comparatively higher profitability.

View and valuation

* JKLC reported strong performance during the quarter, led by higher volume growth and improvement in realization. We believe capacity addition at its subsidiary (Udaipur Cement works) will drive volume growth for the company. We estimate consolidated volume CAGR of 7% over FY23-26E.

* The stock trades at 8.8x/7.3x FY24E/FY25x EV/EBITDA. We value JKLC at 9x Sep’25E (earlier FY25E) EV/EBITDA to arrive at our revised TP of INR930 (INR790 earlier). We reiterate our BUY rating on the stock.

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