MOSL: J K LAKSHMI CEMENT (Buy)-Healthy realizations drive margins
J K LAKSHMI CEMENT: Healthy realizations drive margins
(JKLC IN, Mkt Cap USD0.5b, CMP INR330, TP INR410, 24% Upside, Buy)
- Volumes increase a meager 2% YoY while realizations grow 11%YoY: 1QFY20 total volumes (cement+ clinker) increased 2% YoY to 2.33mt. While cement sales were up 11% YoY, clinker sales declined 60% YoY. Realizations grew 11% to INR4,472/t. Revenue was up 13% YoY to INR10.4b (est. INR8.8b). EBITDA/t increased 78%YoY to INR729/t (est. INR512/t) due to higher realization. EBITDA increased 81% YoY to INR1.7b (higher than est. INR1.1b), with margins at 16.3% (+6.13pp YoY; +5.1pp QoQ). Exceptional Item of INR302m for 1QFY20 represents diminution in the value of Capital Work-in-Progress; this is due to the impairment in the carrying cost of an asset under construction at the company's Durg Cement Plan. Tax rate stood at 35% v/s 9.4% in the year ago period. Adj. PAT increased 5x YoY to INR696m (est. INR247m).
- Management commentary: (1) 20MW Thermal Power plant in Durg has been commissioned. (2) Orissa GU is likely to be commissioned by 2QFY20. Trial run will start in the first week of October. (3) The company will repay INR2b of debt in FY20; capex for the year is INR750-800m. (4) Other expenses for 1QFY20 includes INR200m consultancy fee to BCG and another INR50-60m donation. The company has hired BCG for cost improvement in logistics. (5) JKLC is gaining market share in Rajasthan and Gujarat due to the launch of new brands
- Valuation and view: Company plans to reduce clinker sales in the future and increase the percentage of blended sales. This should bode well for margins. JKLC has also been focusing on deleveraging the balance sheet; it has repaid INR2b debt in FY19 and will reduce debt further by INR2b in FY20.We largely maintain our FY21 EPS estimates and value JKLC at 7x FY'21 EBITDA and arrive at TP of INR410. Maintain Buy.
JK Lakshmi Cement is engaged in the manufacture of paper, cement, magnetic tape, polyester staple fiber and polyester filament yarn. Through its subsidiaries, Co. is also engaged in the manufacture of iron and steel and the provision of financial and investment services. Co. exports paper to Malaysia, Singapore, Sri Lanka, Bangladesh, Africa and the Middle East. Co. manufactures JK Laser, copier paper for laser printer, Chancellor Bond, JK Compac for computer stationery, Grade 43 cement and paper for packaging and books. Co. also exports audio tapes and is a supplier to recording companies. In addition, Co. exports fibers to Germany, Belgium, Egypt, Bangladesh and Russia.
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