Buy JK Lakshmi Cement Ltd For Target Rs.1,050 by Axis Securities Ltd
Capacity Expansion, Premiumization, and Efficiency Gains to Propel Growth
Summary
* Aim to Increase Total Capacity to 30 MTPA by 2030
The company aims to increase its total capacity to 30 MTPA and boost its use of green power to 60% by 2030. Its 1.4 MTPA Grinding Unit in Surat is progressing well and is scheduled for commissioning in Q2FY26. The company plans a capacity expansion of 4.6 mtpa for cement grinding and 2.3 mtpa for clinker at a total capital cost of Rs 2,500 Cr ($65/tonne). This will be commissioned in phases over FY26-28.
* Merger with UCWL:
During the year, the company approved the merger of UCWL, along with 2 more subsidiaries, with the JKLC. The Scheme aims to enhance synergistic benefits across manufacturing, distribution, and logistics by improving alignment, reducing time to market, and delivering greater value to customers. It also offers scope for reduction in fixed costs and other benefits of economies of scale, including common procurement.
* Blended Realisation: The company reported revenue of Rs 6,192 Cr, marking a 9% YoY decline. Its blended realisation also contracted, driven by lower cement prices reaching Rs 5,100/tonne, down 10% YoY.
* Increase in Sales of Smart Building Solution:
Sales of SBS products increased by 13% YoY to Rs 620 Cr. The company commissioned a new Putty plant and White cement plant at Alwar and three new RMC plants at Rajsamand, Bhilwara and Bhopal, taking the total SBS tally to 23 plants. Aggressive SBS expansion plans are underway to increase its contribution to its revenue share
Key Highlights
* Decline in EBITDA Margins:
The company's EBITDA margins contracted by 150 bps to 14% during the year, primarily due to lower realisations. On the positive side, the overall cost of cement production declined by 8% to Rs 4,393/tonne, primarily led by lower P/F cost, which declined by 20% on a tonne basis during the year.
* Nominal Growth in Cement Sales Volume:
In FY25, JKLC reported a cement sales volume of 12.1 MTPA, marking a 1% increase over FY24 levels. This growth was supported by above-average demand from both the trade and non-trade segments.
* Digitisation Efforts Yielding Results: Rapid digitisation across functions helped the company optimise its systems and processes and improve working capital management as well as its plant efficiency.
* Brand Building Exercise Continues: The company’s brand building has helped increase the revenue share of premium products while strengthening product positioning and market share in its key markets.
Key Competitive Strengths
a) One of the most efficient cost producers of cement in India; b) Robust sales and distribution network; c) Strong financial position; d) Experienced and competent management bandwidth; and e) Focus on premium and value-added product
Strategies Implemented a) Stepped up efforts towards digitisation of various functions across plants; b) Increased the use of green energy to reduce overall power cost; c) Enhanced geographical mix to increase realisation; d) Optimised product mix; and e) Implemented strategies to increase the sale of value-added products.
Growth Drivers
a) Affordable housing; b) Real estate growth; c) Focus on infrastructure development, including roads, highways, metros, airports, and irrigation and water projects; and d) Rural road development.
Key Focus Areas
a) Capacity expansion; b) Improving operational efficiency at all levels through sustainable operations; c) Focusing on value-added and premium products; d) Ensuring efficient supply chain management; and e) Enhancing product positioning and market share.
Outlook & Recommendation: Cement demand is anticipated to remain robust, driven by higher capital expenditure on infrastructure and housing projects. JKLC is expanding its capacity to meet the expected increase in demand and to gain market share in its operating regions while also exploring opportunities in new geographies. The stock is currently trading at 11x and 10x FY26E and FY27E EV/EBITDA. We value JKLC at 10.5x FY27E EV/EBITDA and assign a BUY rating with a TP of Rs 1,050/share, implying an upside of 16% from the CMP.
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home SEBI Registration number is INZ000161633
