Buy JK Lakshmi Cement; target of Rs 1080: Motilal Oswal

Motilal Oswal's research report on JK Lakshmi Cement

JK Lakshmi Cement (JKLC)’s 1QFY25 operating performance was below our estimate due to lower-than-estimated realization and volume, which was partly offset by lower-than-expected opex/t. Consol. EBITDA was INR2.2b (11% miss) and EBITDA/t was INR732 (est. INR802). PAT dipped 10% YoY to INR703m (est. INR1.0b) during the quarter. Management highlighted that lower volume and weak realization impacted overall performance. However, the company has implemented various efficiency measures since the last one year, which helped to reduce costs. It is expecting further cost savings of INR50-75/t in the coming years. The merger of UCWL and other wholly owned subsidiaries will drive synergies, simplify corporate structure, and strengthen the balance sheet and cash flows for enabling faster growth.

Outlook

Given the accelerated capex plans, we estimate JKLC’s net debt to mount to INR30b from INR16.4b as of Jun’24. However, its net debt-to-EBITDA ratio is likely to be comfortable at <2.0x by FY27E. The stock trades at 8.5x FY26E EV/EBITDA (consolidated). We value JKLC at 10x Jun’26E EV/EBITDA to arrive at our TP of INR1,080. We reiterate our BUY rating on the stock.