JK Lakshmi Cement Ltd. share price target

Robust profitability should keep JKLC's net D/E at comfortable levels (below 1x), despite factoring in capex acceleration from FY21E. We thus, estimate its standalone net Debt/EBITDA to further cool off to below 1.5x levels during FY20-22E (vs its >3x levels during the preceding six years)! We reiterate Buy with a revised TP of Rs 483. We reiterate BUY on JK Lakshmi (JKLC), with SOTP based TP of Rs 483 (Standalone at 8x Sep21E EBITDA, its 71% holding in Udaipur Cements at 20% disc and 50% value to Sep21E CWIP). Our TP implies EV of USD 86/MT.

JK Lakshmi Cement reported strong growth in revenues and profitability in Q2FY20. However, while revenues beat our estimates, profitability during the quarter was below our forecasts due to higher production costs. The company reported 10% revenue growth to | 935.5 crore (above I-direct estimate of | 877.4 crore). Volumes remained in line with I-direct estimates at 2.06 MT, declining 3% YoY. Topline growth was driven entirely by 13.4% growth in realisations to | 4,540/t (I-direct estimates of | 4,280/t). EBITDA/t increased ~68% YoY to | 722/t while EBITDA margins expanded 513 bps...

Total sales declined 3% YoY to 2.06mt in 2QFY20. While cement sales were up 3% YoY to 1.92mt, clinker sales declined 49% YoY to 0.13mt. Realizations increased 13% YoY to INR4,541/t 4 November 2019 INR1.1b), with the margin at 15.9% (up ~5pp YoY). PAT increased 6x YoY to Sales/EBITDA/PAT increased 11%/72%/5x YoY. Cash conversion rate (operating cash flow/ EBITDA) was low at 0.5x due to higher working capital, resulting in weak operating cash flow of INR1.3b. Working capital was impacted by an increase in inventory by 13 days and in receivable days by 3 over 1HFY20. For 2HFY20, we expect sales/EBITDA/PAT growth of 8%/46%/90% YoY.

to remain weak link for JKLC due to depressed prices and high competition intensity. Commissioning of 20MW CPP, 8MW WHR and 0.8mtpa Grinding unit (GU) at Odisha would add in little to margin expansion of Eastern operations due to intense competition in the region, severe shortage of...

Aided by higher-than-expected realisation, JK Lakshmi Cement (JKLC) has reported a strong set of numbers for 2QFY20, despite dismal sales volume. EBITDA grew by a stellar 62% YoY to Rs1.48bn vs. our estimate of Rs1.1bn, while EBITDA/tonne stood strong at Rs722 (vs. our estimate of Rs526) vs. Rs431 and Rs729 in 2QFY19 and 1QFY20, respectively owing to Rs370/tonne higher realisation than our estimate. Average realisation/tonne increased by 13.4% YoY to Rs4,541, which is even sequentially higher by 1.6%. Notably, low sales volume in Chhattisgarh markets and higher volume in Northern region led to higher realisations. Sales volume declined by 3% YoY and 11.6% QoQ to 2.06mnT in 2QFY20, while it declined marginally by 0.5% in 1HFY20....

JKLC's revenue grew by 12.8%YoY aided by healthy growth in realisation at 10.7%YoY while volume growth was ~2%YoY. EBITDA per ton improved to Rs729 from Rs410 YoY mainly supported by realisation growth while total cost increased by 3%YoY. JKLC has commissioned 20MW thermal power plant during Q1FY20 in Durg (East), expects cost saving of Rs40-50 by FY21E. Commissioning of new grinding unit in Orissa (0.8MT) is expected by the end of Q2FY20 which will support volume and cost saving. Pet coke prices have softened from the peak (Rs7,800 Vs Rs8,100 QoQ) and the benefit is expected in the coming quarters....

Increased profitability along with slower capex pace should keep JKLC's net D/E at comfortable levels (below 1x). Post recent corrections in its stock price, JKLC's valuations are attractive: 7.5x FY21E (EV of USD 69/MT). We thus, upgrade to BUY with TP Rs 381/share. Key risks: Weak future capex execution (as in past) will impact its volume growth visibility, sharp pull back in cement prices. We upgrade JK Lakshmi (JKLC) to BUY (from Neutral earlier), with SOTP based TP of Rs 381 (Standalone at 8x FY21 EBITDA, its 71% holding in Udaipur Cements at 20% disc and ascribe 50% value to FY21E CWIP). Our TP implies EV of USD 81/MT.

Change in sales mix, improving realisations to drive growth Since the company has low headroom for growth due to capacity constraints, the management intends to increase the blended cement ratio and reduce clinker sales, which will also aid in increasing profitability. They would reduce clinker sales and consume the same for cement production. This can be seen during the quarter where cement sales increased 11% YoY and clinker sales plunged 60% in the quarter. During Q1FY20, the company also launched composite cement in eastern markets. By Q2FY20E, the...

Change in sales mix to improve realisations During FY19, the company sold 8.7 MT of cement and 0.96 MT of clinker and the blended cement mix stood at 65% for FY19 which the management intends to bring increase to 70%. Going ahead, the company intends to reduce the clinker sales and consume it for production of cement which will improve the realisations further. Additionally, the thrust to increase the trade sales in the sales mix from the current 55% would also aid realisations. In April, there have been pan-India price hikes taken to the tune of 5%-9%, and...

JKLC reported a strong growth in revenue at 30.7%YoY aided by robust volume growth at 31.7%YoY but realisation was muted. Out of total 9.66MT volumes in FY19, 0.96MT was from clinker sales. JKLC expects conversion of these clinker sales into own cement volumes in FY20 which will lead to better realization. EBITDA per ton declined by 1.6%YoY to Rs446 impacted by higher input cost (+31%YoY) partially off-set by savings in fuel (-11% YoY), freight (-12%YoY) and staff expenses (-18%YoY). Commissioning of 20MW thermal power plant (in 1QFY19) and...