JK Lakshmi Cement - Strong start; growth set to endure; Buy with a target price of Rs 542
27% yoy volume growth helped JK Lakshmi register a strong Q1 FY17 and reflected 83% yoy growth in EBITDA/ton. We expect prices in the north and central regions to spurt, post-monsoons, thereby improving realisations. We are upbeat about the company's growth prospects and maintain our Buy rating, with a target of Rs. 542 (earlier Rs. 409).
Robust volume growth. JK Lakshmi's volumes surged 27% yoy in Q1 FY17 to 2.1m tons (higher contribution from Durg 0.5m tons) and by strong infrastructure demand in the northern region. Realisations also rose, by 3% yoy to Rs. 3,678 a ton. Both led to a 32% yoy rise in total revenue. The Durg plant operated at 100% capacity. The region-wise sales mix was 30% each to Rajasthan, Gujarat and the North, Maharashtra 5%, the East 5%.
EBITDA/ton at Rs. 556. At Rs. 556, EBITDA/ton (Rs. 304 a year ago, Rs. 399 last quarter) was in line with our estimate, buoyed by the continuing benefit of lower operational costs. Greater use of pet-coke led to lower power & fuel costs (down 29%), aided by lower raw material costs (down 11%) and staff costs (down 19%) yoy. The better operational performance drove the Rs. 286m PAT, against an adj. Rs. 180m loss a year ago.
Expansion on track. On the commissioning of the Surat unit (1.35m tons) by Sep'16 (trial runs already begun), JK Lakshmi's grinding capacity will reach 10m tons in Q2 FY17, from the present 8.6m tons. Further, the Udaipur subsidiary (1.6m tons) would be commissioned by Dec'16, Durg (0.9m tons) by Jun'17, and Odisha (0.6m tons) by Sep'17, taking consolidated capacity to 13m tons by Sep'17.
Valuations. At present valuations, the stock trades at an EV/EBITDA of 8.7x and an EV/ton of $85 on FY18e. Our target price is based on EV/EBITDA of 10.5x, which reflects an EV/ton of $103. We maintain a Buy. Risks. Delay in expansion, delayed demand recovery.
Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.443.85 as compared to the previous close of Rs. 445. The total number of shares traded during the day was 12253 in over 774 trades.
The stock hit an intraday high of Rs. 449.05 and intraday low of 431.4. The net turnover during the day was Rs. 5422721.