MOSL: J K LAKSHMI CEMENT (Buy)-Beat led by realizations
J K LAKSHMI CEMENT: Beat led by realizations
(JKLC IN, Mkt Cap USD0.5b, CMP INR307, TP INR425, 38% Upside, Buy)
** Volumes in line; realizations surprise: Total sales declined 3% YoY to 2.06mt in 2QFY20. While cement sales were up 3% YoY to 1.92mt, clinker sales declined 49% YoY to 0.13mt. Realizations increased 13% YoY to INR4,541/t (our estimate: INR4,292). Revenue grew 10% YoY to INR9.4b (our estimate: INR8.8b). EBITDA/t increased 68% YoY to INR722 (our estimate: INR521) due to higher realization. EBITDA was up 62% YoY to INR1.5b (our estimate: INR1.1b), with the margin at 15.9% (up ~5pp YoY). PAT increased 6x YoY to INR459m (our estimate: INR170m).
** 1HFY20 performance: Sales/EBITDA/PAT increased 11%/72%/5x YoY. Cash conversion rate (operating cash flow/ EBITDA) was low at 0.5x due to higher working capital, resulting in weak operating cash flow of INR1.3b. Working capital was impacted by an increase in inventory by 13 days and in receivable days by 3 over 1HFY20. For 2HFY20, we expect sales/EBITDA/PAT growth of 8%/46%/90% YoY.
** Management commentary: (1) JKLC's 0.80 MMTPA grinding unit at Cuttack (Odisha) has been commissioned. (2) The company is planning 2.5-3mt brownfield capacity in north with likely capex of USD 85-95/t which it may finalize over the next six months.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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