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Centrum Broking
JK Lakshmi Cement (Sell)
Target: ₹553
CMP: ₹678.80
JK Lakshmi Cement’s Q1-FY22 earnings disappointed, with EBITDA declining 19 per cent q-o-q to ₹220 crore (Centrum Estimate: ₹230 crore) on account of 8 per cent volume decline and flat realisations.
Cost inflated by nearly 5 per cent q-o-q, as overall expenses headed northwards. Effectively, EBITDAM fell to 17.5 per cent versus 20.3 per cent in Q4-FY21 (17.4 per cent in Q1-FY21) and EBITDA/tonne fell to ₹813 against ₹924 in Q4-FY21 (₹753 in Q1-FY21). Adjusted PAT fell 29 per cent q-o-q to ₹120 crore.
JKLC’s volume gains will be capped due to capacity constraints and restrict growth in FY23, leading to market share loss. Cost controls helped by power cost savings are fully factored in currently and limited benefits are expected post H1FY22 (further, low cost fuel inventory is exhausted). We await the results of the introduction of the new team at JKLC (appointment of Mr Arun Shukla).
We have revised our FY22/FY23 EBITDA estimates to ₹830 crore/₹920 crore (₹770 crore/₹840 crore earlier), factoring better realisations than our earlier estimates. We assign EV/EBITDA multiple of 8x FY23E EBITDA and arrive at a fair value of ₹553/share (earlier ₹464/share).
We downgrade the stock to Sell (Reduce earlier) to factor capacity constraints and margin pressure owing to cost tailwinds.
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