Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities
We maintain our BUY rating on JK Lakshmi Cement (JKLC) with a revised target price of INR 850/share (8.5x Jun'23E consolidated EBITDA). We move to consolidated financials in this report, as this truly captures JKLC's operating performance and as it is expanding the capacity of its subsidiary - Udaipur Works (UCWL). In Q1FY22, the company's consolidated sales volume/revenue /EBITDA/APAT declined 7/7/18/31% QoQ, hit by the lockdown and rising fuel prices. Healthy pricing, however, moderated the impact. The ongoing expansion at UCWL will increase JKLC's capacity by 23% to 16.4mn MT by FY24E-end, supporting its volume growth outlook. In our view, its net debt/EBITDA should remain < 1x, owing to its healthy operating performance.
FY22Q1 performance: JKLC's consolidated volume fell 7% QoQ. While cement vol fell 17% QoQ, large clinker sales moderated the total decline. Adjusted for sharp rise in clinker sales and fall in non-cement revenues, cement NSR rose ~6% QoQ (against flattish blended NSR QoQ). The op-lev loss and rising fuel prices moderated blended unitary EBITDA by 11% QoQ to INR 914/MT. Amid healthy cash flows and slower Capex outgo, JKLC continues to reduce debt, reducing interest expense and gearing ratio.
Consolidated numbers present a better picture: We have incorporated JKLC's consolidated financials with this report as this nullifies the negative impact of inter-company sales between JKLC and UCWL on reported operating and financial metrics. In FY21, while standalone unitary EBITDA and RoE stood at INR 799/MT and 20.4%, the consolidated unitary EBITDA and RoE were much higher at INR 799/MT and 23.4% respectively. Further, JKLC is expanding its consolidated capacity by 23% by FY24E, all of it in UCWL. Thus, it's prudent to analyse its consolidated performance.
Healthy balance sheet and return ratios despite ongoing expansion: We expect consolidated volume to grow at 9% CAGR during FY21-24E, riding on demand uptick and capacity additions. We estimate the unitary EBITDA to firm up to ~INR 965/MT in FY24E, bolstering the operating cash flows. This should largely fund JKLC's Capex, keeping gearing in check (net debt/EBITDA under 1x). We also expect the consolidated RoE to remain buoyant at ~20%. Thus, we maintain our BUY rating on the stock, with a revised target price of INR 850/sh (8.5x its Jun'23E consolidated EBITDA).
Shares of JK Lakshmi Cement Limited was last trading in BSE at Rs. 679.95 as compared to the previous close of Rs. 691.6. The total number of shares traded during the day was 44253 in over 2034 trades.
The stock hit an intraday high of Rs. 700.45 and intraday low of 675.7. The net turnover during the day was Rs. 30272220.