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JK Lakshmi Cement – Strong focus on capacity expansion and cost control

ICICIdirect Research 11 Oct 2024 DISCLAIMER

After a muted H1FY25, company’s overall operational performance is expected to improve significantly in H2FY25 and FY26E, led by ramp-up of new capacities, demand pick-up, improvement in prices and focus on cost efficiency measures

Company’s volume growth is expected to be significantly better at ~10% CAGR over FY24-26E (vs 4.5% CAGR during FY21-24) led by aggressive capacity expansion plan. Company’s capacity, which remained same at 14 mtpa over the last few years, have been recently expanded to 16.5 mtpa at present (through 2.5 mtpa expansion at Udaipur). Further, the company is in process of expanding its cement capacity by 7.1 mtpa to reach 24.1 mtpa by FY27E (through expansions in western & eastern markets)

Total cost/ton has already come down significantly by Rs 630/ton in the last one year, on account of lower fuel prices and some cost reduction efforts on power & logistics front. Company remains focused on further reduction in total cost/ton by Rs 50-75/ton in the coming period, led by increasing usage of green power & alternative fuels along with optimising market mix

We expect sharp improvement in EBITDA/ton in H2FY25 and FY26E (Rs 896/ton in FY26E from ~Rs 600/ton expected in Q2FY25). Moreover, despite significant capex planned over FY25-26E, net debt/EBITDA is expected to be in the comfortable at 2.3x by FY26E

Valuations at 9.7x EV/EBITDA & $69 EV/ton on FY26E looks attractive, looking at company’s strategic plan of entering into a category of large cement players by FY30E with 33 mtpa capacity in favourable markets. We recommend BUY on JKLC with TP of Rs 960

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