JK Lakshmi Cement - Leverage unlikely to increase with expansion - ICICI Securities

Key takeaways from JK Lakshmi Cement (JKLC) management concall include: i) rural demand may remain strong during FY21; while government-led infra demand may improve from H2FY21 as the issue of migrant workforce subsides; ii) cement realisation grew 4.7% QoQ with ~Rs1,000/te EBITDA for North operations in Q1FY21; iii) consolidated net debt declined by Rs1.5bn QoQ to ~Rs13.5bn as at Jun'20-end; iv) ~2.5mnte brownfield expansion in North may be announced in the coming quarters. Leverage is unlikely to increase with the expansion as JKLC could generate OCF of ~Rs5bn p.a., in our view. Maintain BUY with a target price of Rs370/share, based on 7x FY22E EV/E.

- Volumes in Jul'20 were up YoY owing to low spell of monsoon in North and Gujarat as of now. Demand has turned weak in East post mid-Jul'20 owing to sporadic local lockdowns in Chhattisgarh and Odisha due to Covid-19. Management expects rural demand to remain strong in FY21 while government-led infra demand is likely to improve in H2FY21 as the issue of migrant workforce subsides. Urban demand may gradually recover with relaxation in lockdown.

- Consolidated volumes for Q1FY21 was 2.07mnte with EBITDA/te at Rs835/te. This would imply ~Rs1,000/te EBITDA for North operations. Cement and clinker production stood at 1.43mnte and 0.93mnte respectively, implying cement to clinker ratio at 1.54x as blended cement proportion increased to 78% in Q1FY21. Trade sales mix increased only marginally by 200bps YoY (vs 10-15% for peers) to 61% in Q1FY21. Average petcoke prices for the quarter stood at Rs6,700/te as compared to Rs7,800/te and Rs7,000/te in Q1FY20 and Q4FY20 respectively.

- Cement realisation grew 4.7% QoQ in Q1FY21 - in line with our estimates; although blended realisation stood flat QoQ / fell 3% YoY owing to lower RMC and other allied product sales and higher clinker sales YoY. RMC revenues declined 71% YoY to Rs120mn while total non-cement revenues fell from Rs770mn to Rs290mn QoQ. Pricing gap between trade and non-trade segments is around Rs30-40/bag in East while it has widened to ~Rs60-70/bag in North. With the onset of monsoon, management expects prices to see seasonal weakness in the next few months.

- Management may announce 2.5mnte brownfield expansion in North in the coming quarters depending on demand recovery. It may entail a capex of Rs12bn-14bn (US$80-85/te) and may take two years for commissioning. Besides, JKLC is enhancing its WHRS capacity at Sirohi by 10MW, which may be commissioned by Q2FY22. Consolidated net debt declined by Rs1.5bn QoQ to ~Rs13.5bn as at Jun'20-end. Rs400mn placed as inter-corporate deposits would be received back in Aug'20 on completion of a year though the same may be renewed for another year.

Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.282.5 as compared to the previous close of Rs. 284.8. The total number of shares traded during the day was 11385 in over 552 trades.

The stock hit an intraday high of Rs. 288.45 and intraday low of 282.5. The net turnover during the day was Rs. 3251400.

Source : Equity Bulls

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