MOSL: J K LAKSHMI CEMENT (Buy)-Volumes impacted in north-favorable market mix keeps us positive

J K Lakshmi Cement: Volumes impacted in north; favorable market mix keeps us positive

(jklc IN, Mkt Cap USD0.7b, CMP INR380, TP INR451, 19% Upside, Buy)

• Weaker realizations in focus markets: JK Lakshmi Cement’s (JKLC) volumes stood at 2.23mt (-2% YoY, +6% QoQ), below our estimate of 2.24mt, due to lower volumes in north markets on account of the sand mining ban. Realizations were at INR4,022/t (+14%YoY, +1.3% QoQ) v/s our estimate of INR4,037, as healthy pricing in Gujarat was offset by lower realizations in north. Revenue grew 11% YoY (+7% QoQ) to INR8.97b (est. of INR9.1b).
• Better realization drives profitability: Cost/t increased 11% YoY/1% QoQ to INR3,568 due to higher freight and power & fuel cost. Thus, EBITDA/ton of INR454 (+45% YoY, +2% QoQ) was in line with our estimate. EBITDA rose 42% YoY (+7% QoQ) to INR1.0b (in-line; margin: 11.3%, up 2.42pp YoY, flat QoQ). Tax inflow was INR32.7m v/s INR152m in 4QFY17. Hence, adj. PAT was at INR374m (+82% YoY) v/s our estimate of INR173m.
• FY18 performance: Volumes increased 7%, led by ramp-up of its eastern units. Realization stood at INR4,005 (+10%YoY), translating into net sales of INR34b (+17% YoY). EBITDA rose 13% YoY to INR4.1b, translating into EBITDA/t of INR483 (+INR24). Adj. PAT increased 6% YoY to INR866m.
• Management commentary: 1) In 4QFY18, volumes fell in north, but grew 18% YoY in east. 2) Cost differential between north and east operations will largely be same post commissioning of thermal power plant. 3) JKLC has commissioned the 7MW waste heat recovery plant at Durg. The 20MW TPP will be completed by 3QFY19, and is likely to bring additional benefits of INR70-80/tonne.