JK Lakshmi Cement Ltd. share price target

We retain our BUY rating on the stock and roll over our estimate to FY24 and value the company at 7x of its FY24E EV/EBITDA to arrive at a target price of Rs 620/share, implying an upside of 48% from the CMP.

JKLC currently trades at 7x 1Yr Fwd EV/EBITDA (3Yr Avg=7.4x). We value at 5.5x FY24E EV/EBITDA considering current margin pressure. Volumes impacted by transport strike in East region JKLC reported flat growth in Q3FY22 on YoY basis due to 9%YoY de-growth in volumes impacted by transport strike in East region (~18 days impact) and unseasonal rains while realisation grew by ~10%YoY. Value added products including RMC revenue was at Rs.100cr (Vs. Rs.92cr QoQ) and JKLC is targeting ~Rs.500cr in the coming years. Management expects 8-9% volume growth in FY23. GoI's strong focus on infra &...

Volumes impacted by trucker's strike in East region JKLC reported Q2FY22 revenue growth of 7%YoY supported by realisation growth of 10%YoY. Volumes de-grew by 2.9%YoY due to strike by trucker's association in East. Value added products including RMC revenue was at Rs.92cr (Vs. Rs.78cr QoQ / Rs.70cr YoY) and the company is targeting Rs.500cr from this segment. Management expects 8-9% volume growth in FY23. GoI's strong focus on infra & housing will support demand. We expect revenue to grow by 11%CAGR over FY21-23E. Price hike to mitigate cost pressure and recoup margins...

We retain our BUY rating on the stock with a target price of Rs 750/share, valuing the company at 8.5x of its FY23E EV/EBITDA, implying an upside of 22% from CMP.

Background: JK Lakshmi Cements (JKLC) is a north Indian Cement player, established in 1982. JKLC has clinker units in Sirohi, Rajasthan and grinding units in Rajasthan, Gujarat and Haryana. The current clinker capacity is 6.2 MTPA and cement capacity is 11.5 MTPA. JKLC derives sales volume from the northern and western regions. The company has market share of ~6-7% in the northern region and ~9-10% in western regions. JKLC is on the spree of capacity...

Led by steep increase in prices across its markets, JKLC's EBITDA/t doubled since FY19 to ~Rs900/t (adj. for trading operations). However, it remained well below its peers due to higher clinker sales and focus on higher lead distance markets. Given its overdependence on prices, we believe that margins for the company would remain capped due to significant cost pressures, limited scope for cost reduction and high lead distance. With margins trending lower to Rs800/t and limited avenues to contain the cost headwinds, we believe that re-rating in valuations (from 5x to 7x over last six months) capture the...

JKLC's 2QFY22 result was in line with our estimates, despite a miss on volumes due to the transporters strike in Chhattisgarh, but was offset by higher other operating income (RMC and AAC sales). Volumes fell 3% YoY to 2.32mt, while cost inflation led to a 3.3pp YoY dip in EBITDA margin. Given the reasonable valuation (7.3x FY23E EV/EBITDA) and growth visibility from the announced 2.5mtpa expansion (with a budgeted capex of INR16b) in the North India through its subsidiary Udaipur Cement Works (UCWL), we maintain our Buy rating as well as our FY22E/FY23E/FY24E estimate....

We value JKLC at 8.5x FY23E EV/EBITDA and assign a BUY rating to the stock.