JK Lakshmi Cement - Strong operating show; valuation attractive - ICICI Securities

JK Lakshmi Cement's (JKLC) Q2FY21 standalone EBITDA at Rs1.9bn (up 26% YoY) was significantly better than our /consensus estimates owing to higher than expected realisation and volumes. Blended realisation increased 1% QoQ (declined 3.5% YoY), while volumes were up 16% YoY. Consolidated net debt reduced by Rs3bn to Rs12bn as at Sep'20-end aided by Rs1bn working capital release post capex of Rs0.5bn in H1FY21. UCWL (73% subsidiary) announced expansion of its clinker and cement capacities by 1.5mnte and 2.5mnte respectively in Rajasthan at a capex of Rs14bn by Oct-Dec'23. With improving profitability, JKLC would be able to fund this expansion via internal accruals and net debt is unlikely to exceed Rs15bn by FY23E. Factoring-in the Q2FY21 beat, we raise our FY21E-FY22E EBITDA by 14-19% and target price to Rs475/share (earlier Rs370) based on 7x Sep'22E EV/E on half-yearly rollover. Maintain BUY. Conference call is scheduled on 6th Nov (Fri) at 16:00 hrs (022 6280 1143)

- Standalone revenue up 12% YoY to Rs10.4bn (I-Sec: Rs9.8bn). Total volumes (including clinker sales of 0.18mnte) increased 16% YoY to 2.39mnte. Blended realisation was 1.1% higher QoQ to Rs4,381/te (I-Sec: Rs4,267/te) owing to higher non-cement revenue which were severely impacted in Q1FY21. On a YoY basis, the same were still down by 3.5% YoY. Our channel checks suggest cement prices have increased by Rs15-20/bag in North with further improvement in demand in Oct'20.

- Standalone EBITDA/te increased 9% YoY to Rs783/te (I-Sec: Rs653/te) owing to higher volumes and lower costs. Total cost/te declined 6% YoY to Rs3,598/te, in line with our estimates. Raw materials plus power & fuel cost/te declined 2% YoY led by lower petcoke prices. Freight cost/te declined 5% YoY while other expenses/te (including employee costs) declined 14% YoY on strict control on overheads and better operating leverage. PAT increased 76% YoY to Rs806mn (I-Sec: Rs466mn).

- Capacity expansion announced in UCWL: In Oct'20, the management announced setting up of 1.5mnte clinker and 2.5mnte grinding unit along with WHRS at its existing plant in Udaipur, Rajasthan, at a capex of Rs14bn (~US$75/te) for commissioning by Oct-Dec'23. The said expansion will be funded through a blend of debt and equity. This will increase JKLC's consolidated capacity to 16.4mnte.

- Consolidated revenues up 12% YoY to Rs11bn while EBITDA and PAT increased 26% YoY and 84% YoY to Rs2.2bn and Rs895mn respectively. UCWL's EBITDA was 33% higher YoY at Rs379mn in Q2FY21. Valuation at <5x FY22E EV/E and EV/te of
Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.290.2 as compared to the previous close of Rs. 281.7. The total number of shares traded during the day was 33984 in over 1408 trades.

The stock hit an intraday high of Rs. 293 and intraday low of 276.5. The net turnover during the day was Rs. 9755723.

Source : Equity Bulls

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