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NSR will be vital for revenue growth

Result Synopsis

JK Lakshmi Cement (JKLC) reported in-line performance with an EBITDA margin of 12.3% in Q2FY24 against 10.6% in Q2FY23. EBITDA came at Rs705/te, registering a +17% y/y increase on account of better NSR, offsetting the stable total cost/te in Q2FY24. Standalone volume and NSR grew by +10/2% y/y, resulting in revenue growth of +12% y/y during the quarter. Furthermore, EBITDA/PAT surged by +29/41% y/y in Q2FY24, driven by strong revenue. JKLC plans to achieve a 50% green energy share. This includes adding 3.5MW WHRS and increasing the TSR from 4% to 16% at the Sirohi Plant. Additionally, they've partnered with a private player to supply 40MW of solar power at the Durg unit, taking the RE share to 80% from 36% in Q2FY24

Standalone cement/clinker utilization reached to +80/100% offers limited headroom for volume growth. To address this, JKLC plans to add 1.35MTPA GU at its existing Surat unit by H2FY26. We modeled ~4% CAGR volume growth on a standalone basis over FY24-26E, and incremental volume will be coming from UCWL expansion & outsourced units. Furthermore, we believe NSR driven by geo-mix and premium sales will be vital for revenue growth in the near term. To address the volume growth concerns, JKLC set a long-term target of 30MTPA through brownfield & greenfield expansion in Durg, Kutch, Rajasthan with potential inorganic opportunities. Going forward, we anticipate that JKLC will generate a standalone OCF of ~Rs22bn and UCWL should add Rs1-2bn over FY24-26E, supporting the B/S against ongoing capex of Rs18.5bn over FY24-25E. As a result, Net debt to EBITDA is expected to remain at a comfortable level on a console basis, while management targets to maintain the Net debt/EBITDA below 3x during the expansion phase. We value JKLC on a SOTP basis and rolled forward our estimates to FY26. Standalone entity valued at 7x EV/EBITDA and subsidiary UCWL valued at US$100 EV/te on FY26E arriving at a TP of Rs855 with an ADD rating.

Result Highlights

* JKLC reported an in-line volume growth of +10% y/y and NSR growth of +2% y/y (+5% above YSECe) resulted in revenue of Rs14.5bn a growth of +12% y/y (+5% above YSECe) in Q2FY24.

* Furthermore, the gain from better NSR had largely compensated the total cost/te, which came flat y/y and q/q both (+5% above YSECe) resulting in EBITDA/te of Rs705 (YSECe Rs670/te), up by 17% y/y and 23% q/q.

* EBITDA came at Rs1.78bn in Q2FY24 up by 29% y/y and 7% q/q, translates in EBITDA margin of 12.3% (in-line) v/s 10.6% in Q2FY23

* PAT came in at Rs830mn up by 41% y/y and 11% q/q (YSECe Rs743mn) ? In Oct’23, JKLC commissioned 1.5MTPA of clinker Line II in UCWL and the work of 2.5MTPA GU is progressing as per the schedule.

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