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ICICI Securities
JK Lakshmi Cement (Buy)
CMP: ₹316.5
Target: ₹421
JK Lakshmi Cement improved its market share with strong consolidated volume growth of 18 per cent y-o-y in FY19 vs 9 per cent and 12 per cent growth in its key markets and pan-India basis respectively. The growth was led by capacity ramp-up, enhancement of brand equity through judicious mix of new brands (e.g. JK Sixer and composite cement) and expansion of distribution network by deepening presence in rural markets. Increasing share of trade sales (up 10 per cent y-o-y in FY19) and contribution of premium products in trade sales (currently 15-18 per cent ) over the next 2-3 years should aid overall realisation and margins.
Key takeaways from JK Lakshmi Cement’s (JKLC) FY19 annual report analysis include: i) improved market share with 1.5x industry volume growth in FY19 led by capacity ramp-up, enhancing brand equity with launch of new brand and expanding distribution network; ii) increased focus on improving cost efficiencies; iii) 0.8mnte Odisha grinding unit to be commissioned in Q2FY20; UCWL seeking additional Rs7.5bn financial assistance from JKLC for expansion; and iv) sharp improvement in consolidated EBITDA to OCF conversion at about 1.2x owing to working capital release. Given improving profitability, valuation at 6.5x FY21E EV/E or US$60/te is attractive, in our view.
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