Cholamandalam securities is bullish on JK Lakshmi Cements has recommended buy rating on the stock with a target price of Rs 284 in its research report dated May 25, 2020.
Cholamandalam securities' research report on JK Lakshmi Cements
JK Lakshmi Cement (JKLC’s) Top-line declined by 9.5% YoY to ₹10.6bn led by ~16% YoY decline in volumes, while realisation improved 8% YoY. EBITDA grew 54% YoY to ₹2.0bn for 4QFY20, in line with consensus estimates. Pure cement volumes fell ~22% YoY while clinker volume grew 58% YoY. During 4QFY20, capacity utilisation for clinker stood at 95% and 74% for cement EBITDA/t was above consensus estimates at ~₹820 higher ₹375YoY/ ₹170QoQ. PAT at ₹1bn grew 2.3x YoY on higher operating profit, other income, and lower interest expense. Currently, JKLC has taken ₹10/bag hike in North/ East and ₹15/bag in Central region, but prices remain weak in western markets. In east, nearly 80% of sale is in Trade segment vs. 55% in North. Total costs/ t was lower 5% QoQ, ₹180/T (-1.4% YoY). Freight cost/t dipped 2% QoQ/7% YoY. Power & Fuel (+RM Cost/t) was lower 6% QoQ/5% YoY. Due to the lockdown, there is some increase in logistics costs; however JKLC is offsetting the same through direct dispatches to the site. In 4QFY20, JKLC’s booked pet coke price stood at ₹7000/T versus ₹8100/T YoY; on spot basis, there is a 10% reduction in fuel cost as of now. Fuel Mix for 4QFY20 was 20%:80% (Coal: Pet coke).
Outlook
Going ahead, positive cash flow generation led by better operating performance and no meaningful capex in the near-to-medium term will aid JKLC to deleverage its balance sheet in subsequent years. JKLC guided to maintain its net debt to EBITDA ratio 1.0x. At CMP, the stock is trading at 4.7x its FY22E EV/EBITDA. We revise our rating to a BUY, with a target price of ₹284, valuing the company, at 7.5x FY22E EV/EBITDA.
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