J K Lakshmi Cement
BSE SENSEX
27,916
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,615
JKLC IN
117.7
56.5 / 0.9
514 / 253
0/28/24
40
54.1
2018E
37.9
7.8
3.6
30.3
249.2
139.5
23.6
14.4
8.4
99
27 October 2016
2QFY17 Results Update | Sector: Cement
CMP: INR480
TP: INR606 (+26%)
Buy
Realization improvement in a seasonally weak quarter
Financials & Valuations (INR b)
Y/E Mar
2016 2017E
Sales
26.2
31.0
EBITDA
2.7
4.6
NP
0.0
1.0
Adj EPS (INR)
0.4
8.7
EPS Gr. (%)
-97.1 2,230.2
BV/Sh. (INR)
113.3 117.9
RoE (%)
0.3
7.5
RoCE (%)
-0.9
7.3
EV/EBITDA (x)
26.2
15.0
EV/Ton (USD)
117
115
Estimate change
TP change
Rating change
Strong beat led by sequentially higher realization:
JK Lakshmi Cement’s (JKLC)
volumes fell 2% YoY to 1.72m tons (ex-east, volume declined 8% YoY) due to
heavy rains in its focus markets. Realizations rose 3.5% YoY (+4.7% QoQ) as
price hikes in June-16 largely sustained through 2QFY17. EBITDA increased
37% YoY to INR0.94b (margin: 14.3%; +3.7pp YoY, -0.8pp QoQ), translating
into EBITDA/ton of INR546 (+INR154/t YoY, flat QoQ) due to higher prices and
cost savings. Revenue grew 2% YoY to INR6.6b, while net profit was INR249m.
Cost-reduction initiatives at eastern unit to improve profitability:
The Durg
plant, despite operating at ~90-95% utilization, has been only breaking even at
EBITDA level. Management has planned various cost-saving initiatives like (a)
Setting up of waste heat recovery system; (b) Relocating captive power plant
from north; and (c) Laying of conveyor belt to reduce cost of operations over
next 18 months. Total capex toward cost-reduction effort would be INR4b.
Consolidated capacity to increase to 13m tons by FY18:
JKLC’s consolidated
capacity has increased to 10m tons with commissioning of its Surat grinding
unit in 2QFY17. It is further increasing its Durg capacity by 0.9m tons at
estimated capex of INR300m. Integrated capacity of 1.6m tons at its subsidiary
Udaipur unit should be commissioned by Dec-16 at estimated capex of INR8b.
Market mix favorable:
We continue remaining positive on the company due to
its higher exposure to north/central markets, which we believe are likely to see
highest realization increase due to utilization improvement. However,
turnaround of eastern operations would be a key monitorable. The stock
trades at 15x/8x FY17/18E EV/EBITDA and 115/99 USD/ton. We value JKLC at
EV of 10x FY18 EV/EBITDA (implied EV of USD 130), translating to
INR606/share. Maintain
Buy.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Abhishek Ghosh
(Abhishek.Ghosh@motilaloswal.com); +91 22 3982 5436
Varun Gadia
(Varun.gadia@motilaloswal.com); +91 22 3982 5446