Q4FY23 Review: JK Lakshmi Cement: Weak Q4; focus on expansion remains key

JK Lakshmi Cement (JKLC) Q4FY23 consol. Ebitda fell 28% YoY to Rs2.33bn – below estimates; as higher costs impede profitability. Mgmt emphasised working on several costs and realisation levers peers. Growth remains a focus area for the company – reiterated plans to achieve 30mnt capacity (vs 14mtpa now). Higher-than-expected capex intensity to keep net debt elevated in near term, leading to reduction in TP from Rs875 to Rs825. Maintain BUY given reasonable valuations.

Weak Q4 on lower profitability: 

JKLC’s consolidated Ebitda fell 28% YoY to Rs2.33bn – below estimates as higher costs impede profitability. Consolidated Ebitda/t fell 31% YoY but up 7% QoQ to Rs687/t, impacted by high operating costs. Raw material and Power & Fuel costs rose 6% QoQ and 33% YoY to Rs2,864/t — on consumption of high-cost fuel inventories in Q4. Blended realisations grew 13% YoY and 1% QoQ to Rs5,496/t – supported by sales optimisation initiatives. Consolidated volumes grew 18% QoQ and 3% YoY to 3.4mnt. Overall capacity utilisations improved to 97% vs 82% QoQ and 94% YoY.

Thrust on expansion; reiterate plans for 30mt capacity: 

Current expansion in its subsidiary UCWL is progressing well, with 1.5mnt clinker unit expected by Q3FY24 and 2.5mnt cement unit by Q2FY25. Mgmt has proposed rights issue of Rs4.5bn to part-fund expansion at its subsidiary; overall capex outflow is estimated to be Rs8bn to be spent over FY24-25. Further, mgmt highlighted that it has the option to expand capacities up to 30mnt organically through a mix of brownfield (Durg and UCWL) and greenfield units (Gujarat and Rajasthan) – owns limestone mines at Kutch and Nagaur. On White Putty business – the company is setting up a plant in Alwar (Capacity: 0.1mnt), which is expected to commission in H2FY24. It has also raised Rs2bn through green bonds to fund AFR project and WHRS capacity.

Net debt to remain elevated in near term: 

FY23 consol. net-debt stood at Rs~10bn. Additionally, due to high capex intensity over the next 2 years (Rs~10bn), analysts of IIFL Capital Services estimate operating cashflows to be utilised to fund capex; leaving behind limited scope of debt repayment. On account of this, they revise their net-debt assumption upwards, leading to cut in TP from Rs875 to Rs825. Analysts of IIFL Capital Services value the stock at 8.5x 2YF EV/Ebitda and maintain BUY.