JK Lakshmi Cement Ltd. share price target

We maintain our Target at Rs.380 but downgrade to Accumulate due to recent surge in the stock price. Q3FY20 revenue grew by 7.5%YoY aided by 4.5% YoY growth in realisation while volume growth was 2.8%YoY. EBITDA per ton improved to Rs641 from Rs426 YoY mainly supported by realisation growth and benign cost. Coal linkage in 20MW power plant in East and expected 10MW Waste Heat Recovery will bring additional cost savings. JKLC's current focus is on deleveraging (repayment of ~Rs300p.a)...

Lower realisation growth leads to miss in performance Volume growth to resume in FY21E; sales mix improving Owing to elections, heavy monsoons in several states and overall weakness in the economy, 9MFY19 volumes for cement growth remained flattish. Volumes have also remained flat for the first nine months. For FY20E, we expect the company to report ~3% decline in volumes (Q4FY19 being a very high base quarter). Led by expectations of a revival in the demand scenario, we expect healthy growth in FY21E. Realisations are also expected to grow...

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 in the last six years)! Stable north market outlook and healthy cashflow generation should drive re-rating for JKLC. We reiterate a Buy with a TP of Rs 485. We reiterate BUY on JK Lakshmi (JKLC), with SOTP based TP of Rs 485 (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 84/MT.

Sector: Cement /Small Cap | Earnings Update 2QFY20 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...

Q2FY20 revenue grew by 9.9%YoY aided by strong growth in realisation at 13.4%YoY while volume de-grew by ~3%YoY. Volume decline was mainly due to impact of cyclone in East. Improvement in trade sales in the mix and higher North volumes supported growth in realisation. EBITDA per ton improved to Rs722 from Rs431 YoY mainly supported by realisation growth while total cost increased by 7%YoY . Commissioning of new grinding unit (Odisha 0.8MT) and 20MW thermal power plant in East will bring cost savings while benefit from softening of pet coke prices is expected in coming quarters....

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...

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....

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.

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...

We estimate JKLC's EBITDA CAGR of 25% driven by pricing and cost tailwinds during FY19-21E. JKLC's upcoming 20MW CPP in Durg and GU in Cuttak will improve east profitability. Increased profitability along with slower capex pace should keep net D/E at comfortable levels (below 1x). We maintain NEUTRAL rating with TP Rs 378/share, as the stock appears fully valued currently. We retain NEUTRAL rating on JK Lakshmi (JKLC) with SOTP based TP of Rs 378 (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/MT of USD 80

to INR1.3b (higher than our est. of INR1.2b) due to higher volumes, with margins flat YoY at 11.2%. Tax rate stood at 24.7% v/s -10.7% in the year ago period. Thus, PAT increased 17% YoY to INR433m (v/s est. of INR356m). Management commentary: (1) JKLC sold 9.65lakh tonnes of clinker in FY19. The company plans to reduce the sales of clinker in future. (2)Work on the 20MW Thermal Power plant in Durg and the grinding unit in Odisha of 0.8mt is likely to be commissioned by 2QFY20. (3) Raw material cost for the quarter was higher due to clinker purchase. (4) Prices declined in the Gujarat market in 4QFY19....

ICICI Securities Ltd | Retail Equity Research JK Lakshmi Cement reported a mixed set of Q3FY19 numbers. Net sales increased 11.7% YoY to | 935 crore (vs. I-direct estimate of | 895 crore), driven by 9% volume growth to ~ 2.3 MT (vs. I-direct estimate of 2.2 MT). Realisations were at | 4056/t (marginally lower than I-direct estimate of | 4083/t) On the margin front, EBITDA margins fell 78 bps YoY to 10.5% (below I-direct estimate of 13.1%) due to higher freight and power &...

JK Lakshmi Cement (JKLC) is part of JK group mainly focused in North, West and Eastern regions of India with a consolidated capacity of 12.5MT. Q2FY19 revenue grew 9.6%YoY aided by healthy volumes (12.5%YoY). However, realisation de-grew 2.6%YoY, resulted in 150bps margin decline. Total cost/Ton declined by 0.9%YoY due to reduction in freight (-12%YoY) and other expenses (-3.3%YoY) which has offset by 11% surge in fuel cost. Freight cost declined on account of reduction in lead distance. Full benefit from relaxation in axle load will reduce cost further....