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ICICI Securities Report
JK Lakshmi Cement’s consolidated EBITDA grew 75% YoY to Rs 8 billion in FY20 with EBITDA/te nearly doubling to Rs 794/te led by better prices in the North. Profitability of East operations could improve with the recent commissioning of grinding unit at Odisha and lower clinker sales. Besides, the company has reduced its net debt by Rs 6.5 billion over past three years to Rs 15 billion in FY20. Given likely stability in North prices owing to higher utilisation, JKLC could generate operating cash flow of approximately Rs 5 billion per annum, which would be sufficient for future expansion. Accordingly, net debt is unlikely to increase meaningfully over the next 2-3 years.
JKLC’s FY20 consolidated EBITDA per tax expense almost doubled to Rs 794/te, which is higher than its standalone EBITDA/te (Rs732/te) after intercompany elimination of volumes and better profitability of the subsidiary Udaipur Cement Works Ltd. Given that there is hardly any cost differential between North and East operations (after various cost-saving initiatives at East plant), realisation differential of Rs 20 to 25 per bag broadly translates into the EBITDA/te differential. This would imply JKLC’s North and West operations may be generating EBITDA/te of less than Rs 900/te, comparable to most mid-cap peers. Prices in the North may remain firm given higher utilisation and better consolidation, which augurs well for JKLC’s profitability.
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