BUY on JK Lakshmi Cement - HDFC Securities

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

JK Lakshmi Cement's (JKLC) standalone revenue/EBITDA/APAT fell 21/16/26% YoY to Rs 8.25/1.43/0.44bn respectively, due to lower sales. A healthy realisation and cost controls led to stable unitary EBITDA (+3% YoY to Rs 752/MT). We estimate demand recovery and benign input costs in subsequent quarters to drive 6% EBITDA CAGR during FY20-23E. JKLC expects to kick-start growth capex FY22E onwards in the northern market. We maintain estimates and BUY rating on the stock with a TP of Rs 385/share.

1QFY21: Sales volume fell 18/23% YoY/QoQ to 1.91 mn MT due to minimal sales in April. However, demand uptick (albeit low) in May/Jun moderated the decline. Adjusted for the sharp fall in non-cement revenue, cement NSR increased 5/5% QoQ/YoY (against blended NSR fall of 3% YoY). Operating cost fell 4% YoY, mainly on account of a sharp cut in other expenses and as input/logistics costs remained low YoY. Adjusted for non-cement revenue, cement opex increased ~5% YoY, in our view, offsetting NSR gains. Thus, unitary EBITDA rose 3% YoY to Rs 752/MT. The non-cement revenue did not contribute to EBITDA in 1QFY21 as against ~5-6% OPM in normal periods. Lower debt drove down interest expense by 6% YoY. Other income rose 39% YoY on treasury gains.

Outlook: JKLC expects demand to recover in subsequent quarters, thus moderating FY21E volume decline at 16% YoY. In FY22E, we expect 21% rebound on demand normalisation and low base effect. We expect 6% EBITDA CAGR during FY20-23E. We maintain our estimates. On capex, JKLC suggested it would start work on brownfield expansion in the northern region next year onwards. As the capex would be spread over 2-3 years, we expect JKLC's net debt/EBITDA to remain comfortably below 2.5x. We maintain BUY rating on the stock. Our target price of Rs 385/sh is SOTP based; we value the standalone cement business at 8x Jun'22E standalone EBITDA and its 73% holding in Udaipur Cement at 20% discount to current market capitalisation.

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

Keywords