JK Lakshmi Cement - Improving profitability to fund expansion - ICICI Securities

Key takeaways from JK Lakshmi Cement's (JKLC) management concall include: i) Demand is expected to remain strong during H2FY21 led by rural/semi-urban housing with infra demand likely to gain momentum post festive holidays; ii) targeting 10.5mnte-11mnte consolidated volumes in FY21, implying 15-25% YoY growth during H2FY21 on low-base; iii) prices have increased by Rs15-30/bag in North, while they remained broadly flat MoM in West and East regions in Oct'20; iv) UCWL's de-bottlenecking project by 25% may complete by Mar'21; v) UCWL will further add 1.5mnte clinker and 2.5mnte grinding unit at a capex of Rs14bn by Q3FY24; and vi) consolidated net debt is unlikely to increase beyond Rs15bn over the next three years from the current Rs12bn even after expansion. Maintain BUY with target price unchanged at Rs475/share (7x Sep'22 EV/E).

- Management expects rural demand to remain strong in FY21 while infra demand is expected to gain momentum with the return of migrant workers post festive holidays. JKLC has witnessed strong volume growth in Oct'20 and is targeting consolidated volumes of 10.5mnte-11mnte, implying 15-25% YoY growth in H2FY21 on a low base. Consolidated volumes stood 4.61mnte (including 0.6mnte clinker sales) in H1FY21 with Rs4bn EBITDA, implying EBITDA/te of Rs863/te (up 8% YoY). Non-cement (including RMC) revenue stood flat YoY at Rs700mn in Q2FY21. Trade sales remained at 55% with premium products contribution at 21% of trade sales in Q2FY21. 10MW WHRS project at Sirohi is likely to complete by Sep'21.

- Average prices up by Rs7-8/bag MoM in Oct'20. Prices have increased by Rs15/bag in trade segment and Rs30/bag in non-trade segment in North, while they have remained broadly flat MoM in West and East regions in Oct'20. Prices have increased by Rs5/bag in Chhattisgarh, the same has declined in Odisha in Oct'20.

- UCWL de-bottlenecking project is likely to complete by Mar'21. UCWL is increasing its clinker capacity to 1.5mnte from the current 1.2mnte and grinding capacity to 2.2mnte from the current 1.6mnte. UCWL volumes stood 0.95mnte in H1FY21 with EBITDA of Rs670mn and may exceed Rs1.5bn in FY21.

- UCWL announces setting up of 1.5mnte clinker unit along with WHRS at its existing location in Udaipur, Rajasthan with 2.5mnte split grinding units (location yet to be finalised), at a capex of Rs14bn to be commissioned by Q3FY24. It would be funded through Rs4bn equity (largely from JKLC and internal accruals of UCWL) and Rs10bn through raising debt in UCWL. Standalone JKLC would be paring debts by Rs8bn over the next three years. Accordingly, consolidated net debt is unlikely to increase beyond Rs15bn over the next three years from the current Rs12bn even after expansion. Proximity to North markets, lower fixed costs at UCWL and logistics constraints at Sirohi led to expansion announcement at UCWL. Merger with UCWL is still 3-4 years away given incentives enjoyed by UCWL and MAT credit availed by JKLC.

Shares of JK LAKSHMI CEMENT LTD. was last trading in BSE at Rs.337 as compared to the previous close of Rs. 328.6. The total number of shares traded during the day was 19341 in over 922 trades.

The stock hit an intraday high of Rs. 342.45 and intraday low of 333. The net turnover during the day was Rs. 6562413.

Source : Equity Bulls

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