Earnings Update - JKL Cement (JKLC IN) - Cost saving measures to drive the margins - CSEC Research

Cost saving measures to drive the margins

- JKLC posted a revenue growth of 9.7%YoY in 4QFY17 to INR 8.1bn aided by volume growth of 6% YoY to 2.28MT. Realization grew by 3.5% YoY to INR 3,532/ton.

- JKLC's EBITDA contracted by 16.1% YoY to INR 0.7bn due to higher power and fuel costs EBITDA per ton for the quarter stood at INR 325/ton Vs INR 396/ton in 4QFY16. Adj PAT fell by 19.3% YoY to INR 209mn.

- Total cost per ton increased 6.7% YoY to INR 3,219/ton due to higher Raw material cost and Power & Fuel cost. Raw Material costs increased 23.9%YoY to INR 748/ton. Power & fuel costs increased 11.7%YoY to INR736/ton. Freight costs increased 1.9%YoY at INR 924/ton. Other expenses per ton fell by 3.6% YoY to INR 597/ton on account of lower maintenance cost and decline in overhead expenses.

Valuation: Going ahead, JKLC's earnings growth would be driven by (i) strong volume growth due to newly commissioned Durg plant and other upcoming plants (ii) better realization & improvement in margins on the back of cost saving initiatives and (iii) Increased capacity coupled with higher capacity utilization due to expected improvement in Industry's demand-supply dynamics (mainly led by an increase in infrastructure spending and affordable housing under Pradhan Mantri Awas Yojna). At CMP, the stock trades at EV/EBITDA of 10.4X on FY18E and 9.8X on FY19E. We assign an EV/EBITDA multiple of 11X FY19E to arrive at a target price of INR 552 with a BUY rating.

Risks: Delay in commissioning of capacity, adverse movement in fuel prices and freight rates.

Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.471 as compared to the previous close of Rs. 478.1. The total number of shares traded during the day was 13535 in over 872 trades.

The stock hit an intraday high of Rs. 488.25 and intraday low of 467. The net turnover during the day was Rs. 6486818.

Source : Equity Bulls

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