JK Lakshmi Cement Ltd. share price target

JKLC is a dominant player in the cement industry in its key markets of North and West India and derives 75% of its revenue from these two regions and has a sizeable market presence in the Eastern India also . The total cement capacity of the company stands at 13.3 mntpa.

We initiate coverage on JK Lakshmi Cement Ltd with a BUY recommendation and a Target Price of Rs 339, which implies an upside of 23% from the current levels.

Covid-19 impacts the volumes but better than industry JKLC reported revenue de-growth of 20.8%YoY mainly impacted by volume declines (18%YoY) owing to lock-down restrictions on account of Covid-19. However, the volumes are better than industry (de-growth of ~38%YoY). Blended realisation degrew by 3.4% YoY due to higher than normal percentage of clinker sales (0.3MT Vs 0.11MTYoY). We remain cautious about the demand outlook in the short-term due to current uncertain situation. We factor ~7%YoY decline in volumes in FY21 but healthy double digit recovery in FY22E supported by revival in economic activities. The much awaited brownfield capacity expansion is likely to be announced in the coming quarter...

Focus on cost efficiencies to drive margin expansion Being predominantly a north (8.2MT capacity) and central (3.5 MT capacity) player, the company has got structural advantage of balanced supply and demand environment in these two high growing regions. Further, selfsufficiency in power, through captive power plant (CPP) of 54 MW, waste heat recovery (WHR) plant of 14 MW and solar power plant of 6 MW has helped the company to reduce reliance on costly grid power. In the eastern region, the company has already commissioned its 7 MW WHR plant and has recently commissioned CPP of 20MW, to become self-sufficient. To...

margins in North and Gujarat regions. East region would witness flooding of capacity addition over next couple of years. However, we do not expect further deterioration in region's margins given the wafer thin margins (with near nil RoCE) and likely consolidation. Commissioning of CPP, WHR and split grinding unit at Odisha further boosted the cost competitiveness of its East operations. Led by bottomed-out earnings in East operations (25% of volumes) and strong outlook on North and Gujarat region (combined 75%), JKLC's earnings quality improved significantly over last couple of years....

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 expansion;...

JK Lakshmi Cement reported better-than-expected Q4FY20 numbers. Revenues for Q4FY20 fell 9.5% YoY to | 1,061 crore (vs. I-direct estimates of | 910 crore). Revenues declined on account of a 15.1% drop in volumes YoY to 2.5 MT (vs. I-direct estimate of 2.11 MT). Average realisations for the quarter were at | 4,242 per tonne (vs. I-direct estimate of | 4,320/t). Prices remaining high in north and west supported realisation growth. EBITDA margins of the company expanded 784 bps YoY to 19% while EBITDA/t increased 81% YoY to | 808/t (vs. I-direct estimate of | 650/t) led by...

JKLC posted (9.5%)/ 53.9%/ 128.5% YoY growth in revenue/ EBITDA/ APAT to Rs10.6 bn/ Rs2.0 bn/ Rs988 mn in Q4FY20 driven by 7.7% YoY realization growth (-0.5% QoQ). We expect 1.5%/ 0.6%/ (4.3%) revenue/ EBITDA/ APAT CAGR over FY20-22E led by (15.0%)/ 20.0% volume growth and (1.0%)/ 2.0% cement realization growth in FY21E/ FY22E. We reduce our FY21E estimates by 21.1%/ 26%/ 49.4% for revenue/ EBITDA/ APAT primarily due to (-15%) vs. 0.9% volume growth and (1%) vs. 0.7% realization growth to factor extended COVID-19...

The lockdown on account of COVID19 pandemic has impacted the industry volumes significantly due to lack of construction activities. April & May would be a wash out, and assuming gradual relaxation in lockdown and resumption of construction activities, we expect FY21E to end with ~15% volume decline for the industry. We expect JKLC's revenue to decline by ~13% for FY21E due to COVIDF19 impact and lack of capacity additions. The impact of decline in utilization on margin would be partially offset by the benefit of lower pet coke and crude prices. We expect EBITDA margin to decline to 15.1% in FY21E from 15.7% YoY....

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...

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.

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....

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...

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....