Buy JK Lakshmi Cement; target of Rs 870: Motilal Oswal

Motilal Oswal's research report on JK Lakshmi Cement

JK Lakshmi Cement (JKLC) is among the least cost producers in the industry, backed by lower energy consumption, higher green power share (WHRS and Solar), and efficient management of the logistics. Given the early costcutting attempts, the company’s cost curve places it higher than its peers. Despite lower cost, JKLC’s profitability was significantly lower than peers’ average, mainly due to weak realizations. However, JKLC has made significant progress, led by the following: 1) increasing volume share in Gujarat market to 35% in FY23 from 29% in FY18; 2) The share of trade sale has also grown to 55%; 3) The company has achieved an increase in the share of premium products (stood at ~26% of trade sales in 4QFY23 v/s ~15% in FY20-end). As a result, EBITDA/t gap v/s peers’ average narrowed to INR163/t in FY23 from INR467/429 per tonne in FY17/FY18.

Outlook

We believe JKLC is trading at an attractive valuation of 6.5x FY25E EV/EBITDA and USD63/t (at a significant discount to the replacement cost). While we maintain our standalone estimates, we incorporate consolidated numbers in this note, given the expansion planned in its subsidiary. We value JKLC at 8.5x FY25E EV/EBITDA to arrive at our TP of INR870 and reiterate our BUY rating on the stock.