Maintain BUY on JK Lakshmi Cement - Strong margin uptick; Healthy balance sheet - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

JK Lakshmi Cement (Q4FY20): Strong margin uptick; Healthy balance sheet. Maintain BUY
(TP Rs 370, CMP Rs 206, MCap Rs 24 bn)

We maintain BUY on JK Lakshmi Cement with a TP of Rs 370. A sharp 16% vol dip in 4QFY20 pulled down FY20 vol by 5% YoY. The Covid impact will further pull down FY21E volume by 16% YoY. However, we build in 21% vol recovery in FY22E. This along with falling energy costs in FY21 to limit standalone EBITDA decline CAGR at 3% during FY20-22E. Healthy cash flows keep leverage comfortable and support capex acceleration FY22E onwards. In 4QFY20, despite lower vols, healthy pricing in the north/Guj markets boosted standalone EBITDA/APAT by 54/133%.

EBITDA Margin surges to 30-qtr high; despite sharp sales' decline: Sales vol fell 16% YoY (+6% QoQ) to 2.5mn MT, hit hard by Covid led lockdown, pulling down cem utilisation to 70% vs 96/80% YoY/QoQ. Higher share of clinker (13% vs 7/7% YoY/QoQ) in total sales flattened NSR QoQ. However, NSR remained 8% up YoY, benefitting from buoyant pricing in the north/Guj markets. This, along-with lower unitary opex (lower energy cost tailwinds) boosted unitary EBITDA by 84/26% YoY/QoQ to Rs 820/MT (30-qtr high)! Hence despite 10% revenue fall, EBITDA/PAT rose 54/133% YoY.

Balance sheet firmed up on healthy cashflows, lower capex in FY20: Solid pricing in the north/Guj regions boosted 10% NSR gain in FY20, which more than offset 5% vol loss and unitary EBITDA grew to its 7-yr high of Rs 732/MT. Falling petcoke prices and logistics cost control also boosted margin expansion. Thus, EBITDA/APAT soared 62/221% YoY. Amid low capex spends, JKLC's gross/net debt fell 10/18% YoY to Rs 14.5/10bn resp and its net Debt/EBITDA halved to 1.5x YoY (10-yr low).

Concall / capex updates: The co is adding a 10MW WHRS in Sirohi by Mar'21E and its subs - Udaipur Works will debottleneck its clinker capacity by 0.3mn MT. It will start work on a 2.5mn MT brown-field expansion in Raj in FY22E, after the Covid situation normalizes. Thus, total capex outflow during FY21-22E in our view should be lower at Rs 8bn vs our earlier est of Rs 12bn. This should keep leverage under check amid earnings decline in the same period. We estimate net Debt/EBITDA to remain under 2x.

Maintain BUY: We have reduced EBITDA est for FY21/22E by 4/4% each as we factor in higher impact of Covid and build in EBITDA to decline at 3% CAGR during FY20-22E. We value the standalone cement biz at 8x FY22E EBITDA and value its 72.5% holding in Udaipur Cement Works at 20% disc. Thus, our SOTP based TP remains unchanged at Rs 370. We continue to like the co for its large presence in north markets and on increased cost controls

Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.206 as compared to the previous close of Rs. 199.35. The total number of shares traded during the day was 119171 in over 4384 trades.

The stock hit an intraday high of Rs. 220.8 and intraday low of 201. The net turnover during the day was Rs. 25091686.

Source : Equity Bulls

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