Buy JK Lakshmi Cement Ltd For Target Rs.970 by Motilal Oswal Financial Services Ltd
Cost savings drive margin; positive outlook ahead
Expects volume growth of ~8% in 4QFY25 in line with industry growth
* JKLC’s 3QFY25 EBITDA was above our estimate, led by higher volumes (~4% beat) and lower opex/t vs. our estimates. Consol. EBITDA declined ~33% YoY to INR2.0b (~7% beat) and EBITDA/t declined ~35% YoY to INR666 (est. INR651, cost benefit partly offset by lower-than-estimated realization). OPM contracted 4.3pp YoY to ~13%. PAT declined ~57% YoY to INR594m (18% above estimates, led by lower ETR).
* Management indicated that the company is working on brand rejuvenation to improve its price positioning. JKLC expects these initiatives will help to improve its cement prices by INR80-100/t. Secondly, JKLC remained focused on increasing operational efficiency and cost reduction. It is also focusing on increasing renewable power share (at 48% in 3Q) and reducing lead distance (at 381km in 3Q). The merger of its subsidiaries, including UCWL, is pending for various approvals, which may take eight to nine months.
* We largely retain our earnings estimates for FY25-27. We estimate a CAGR at 12%/26%/33% in revenue/EBITDA/PAT over FY25-27. The stock is trading fairly at 11x FY26E/10x FY27E EV/EBITDA. We maintain BUY on the stock and value it at 11x Dec’26E EV/EBITDA to arrive at our TP of INR970.
Sales volume increases 2% YoY; realization/t declines 14% YoY
* Consolidated revenue/EBITDA/adj. PAT stood at INR15.0b/INR2.0b/INR594m (down 12%/33%/57% YoY and up 1%/7%/18% vs. our estimate). Sales volume increased 2% YoY to 3.0mt. Realization was down 14% YoY/1% QoQ at INR4,940/t (-3% vs. our estimate).
* Opex/t declined ~10% YoY, driven by an 18% YoY decline in variable cost/t. Freight costs/other expenses/t declined 1% YoY (each). OPM dipped 4.3pp YoY to ~13% and EBITDA/t declined 35% YoY to INR666 in 3QFY25.
* In 9MFY25 consol. revenue/EBITDA/PAT stood at INR43.0b/INR5.1b/INR1.2b (declined 14%/28%/63% YoY). Volume/realization declined 2%/12% YoY. EBITDA/t declined 27% YoY to INR601 and OPM dipped 2.3pp YoY to ~12%. We estimate revenue/EBITDA/PAT to decline 3%/8%/5% YoY in 4QFY25.
Highlights from the management commentary
* Demand started improving in Dec’24 and JKLC expects demand growth of ~4-5% in FY25 and ~6-7% in FY26. Demand improvement will support price increases in the coming months.
* Average fuel consumption costs stood at INR1.57/kcal vs. INR1.62/kcal in 2QFY25. AFR share stood at ~11% at company level (~14% at Sirohi plant).
* Capacity utilization at UCWL stood at ~57% on expanded capacity in 3QFY25. It targets to ramp up capacity utilization at UCWL to ~65% in FY26.
Valuation and view
* Demand improvement in the company’s core market (North and Gujarat) and cost control drove sequential recovery in margin. We estimate margin to further improve in the coming quarters, led by better volume growth and improvement in realization (cement prices are up by ~INR75-100/t as compared to 3QFY25 average)
* We estimate a CAGR of ~12%/26%/33% in revenue/EBITDA/PAT over FY25-27 and OPM to improve to ~16%/17% in FY26/27 vs. ~14% in FY25. However, given the company’s accelerated capex plans, we estimate its net debt to mount to INR34b from INR17.5b as of Dec’24. The net debt-to-EBITDA ratio is estimated at 2.6x vs. 1.3x/2.3x in FY24/FY25E. The stock trades fairly at 11x FY26E/10x FY27E EV/EBITDA. We value JKLC at 11x Dec’26E EV/EBITDA to arrive at our TP of INR970. Reiterate BUY.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
