JK Lakshmi Cement Q3 Results Update: Healthy sales volume aids performance; Maintain BUY | JK Lakshmi Cement Q3FY18 | Indianotes.com

JK Lakshmi Cement (JKLC) has reported a better-than-estimated operating performance in 3QFY18 mainly owing to lower-than-expected employee and freight cost. EBITDA stood at Rs943mn (+14% YoY and -1% QoQ) vs. our estimate of Rs885mn. While Power & Fuel cost/ tonne rose by a sharp 28% YoY and 7% QoQ to Rs902 due to ban of petcoke usage and spike in fuel prices, JKLC’s operating cost/tonne stood reasonably at Rs3,523 (+9.5% YoY and -2.2% QoQ) mainly aided by lower employee and freight cost on per tonne basis. Average realisation stood at Rs3,971/tonne (+8% YoY and -3.4% QoQ), which is broadly in-line with our estimate. Sales volume grew by 15.4% YoY and 11.6% QoQ to 2.11mnT including 0.20mnT clinker. While we maintain our positive stance on the stock considering the initiatives taken to improve operating efficiencies in Eastern operations and gradual spike of Chhattisgarh realisation, we cut FY18E and FY19E EBITDA by 16% mainly to factor in dismal demand in Rajasthan due to sand shortage and higher fuel cost. Nonetheless, we maintain our BUY recommendation on the stock with a revised Target Price of Rs550 (from Rs500).

Strong Demand in Eastern Markets Boosts Sales Volume

JKLC continued to report robust growth in sales volume to 2.11mnT (+15% YoY and +12% QoQ) owing to strong demand in Eastern markets (Eastern volume grew by 29% YoY and 21% QoQ to 0.54mnT). Consequently, revenue grew by ~25% YoY and ~8% QoQ to Rs8.4bn. However, sales volume is expected to be impacted in coming period on the backdrop of sand crisis in Rajasthan.

Operating Performance Ahead of Estimates

While there has been visible pressure in average sequential realisation, lower than estimated freight and employee cost resulted in a better-than-estimated operating performance. Reported EBITDA grew by 14% YoY to Rs943mn. EBITDA/tonne stood at Rs447 in 3QFY18 v/s Rs452 & Rs505 in 3QFY17 & 2QFY18, respectively. JKLC’s net profit stood at Rs86mn as against Rs76mn and Rs132mn in 3QFY17 and 2QFY18, respectively.

Outlook & Valuation

JKLC has commissioned 7MW WHRS at Durg plant in 3QFY18, which is expected to aid further savings in operating cost. Considering the initiatives undertaken to improve operations in Eastern markets by means of railway siding, WHRS, CPPs, commissioning of conveyor belt, we expect JKLC’s operating performance to witness meaningful improvement from FY19E onwards. Notably, recent spike in Chhattisgarh realisation augurs well for JKLC’s future performance. We reiterate our BUY recommendation on the stock with a revised Target Price of Rs550 (9x FY20 EBITDA).

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