MOSL: J K LAKSHMI CEMENT (Buy)-Cost inflation impacting margin
J K LAKSHMI CEMENT: Cost inflation impacting margin
(JKLC IN, Mkt Cap USD1.1b, CMP INR692, TP INR800, 16% Upside, Buy)
- Volume declined by only 8% QoQ to 2.66mt in 1QFY22 on account of higher clinker sales, which led to EBITDA growth of 51% YoY to INR2.2b, despite a miss on realization and margin.
- Cost inflation is a significant worry for JKLC as the cost of coal and diesel has moved up sharply, while prices are expected to fall seasonally in the near term. Given the reasonable valuation (7.3x FY23E EV/EBITDA) and growth optionality from the announced 2.5mtpa expansion in North India through its subsidiary Udaipur Cement Works (UCWL), we maintain our Buy
Weaker margin offset by higher clinker sales
- Standalone revenue/EBITDA/adjusted PAT rose 49%/51%/167% YoY to INR12.3b/INR2.2b/INR1.2b, beating our estimate by 16%/12%/30% on account of higher clinker sales.
- EBITDA/t, however, was weaker than expected at INR813/t (-12% QoQ; +8% YoY) due to greater clinker sales and higher-than-expected raw material cost and other expenses.
- As expected, cement volumes declined by 18% QoQ to 2.29mt (+43% YoY), partially offset by a sharp 2.7x QoQ jump in clinker sales to 0.37mt. Overall volumes were down just 8% QoQ to 2.66mt (+40% YoY).
- On a blended basis, realization grew to INR4,633/t (+2% QoQ; +7% YoY) and cost/t rose to INR3,820 (+5% QoQ; +7% YoY).
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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