One of the most efficient players in cement midcap space-- JK Lakshmi Cement :: ICICI Securities, PDF link

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One of the most efficient players in cement midcap space
JK Lakshmi Cement is one of the most cost efficient players in the
industry. It has been operating close to ~100% capacity utilisation for the
last three years with healthy operating margins vs. industry. Its cost
efficiency emanates from high usage of alternate fuel (pet coke), logistic
advantage led by expansion strategy through split grinding unit and self
sufficiency in power. Its per tonne power consumption remains best in
the industry with usage of 72 Kwhr/tonne against industry norms of 90-95
Kwhr/tonne. Its fuel consumption is also lower at 706 kcal/kg for the
company against industry norms of 800 kcal/kg. The company has also
more than 100% low cost power availability for its plants. Due to this
operational efficiency, P&F cost has remained lower for the company.
Healthy expansion plans to fuel growth in future
We expect JK Lakshmi to report healthy revenue CAGR of over 27.1%
over the next three years led by capacity expansion and healthy demand
in the northern region (to add 3.4 MT capacity i.e. 56% of its existing
capacity over the next two years) coupled with operating efficiency
leading to better volume growth and higher profitability. The company’s
ongoing greenfield project at Durg is expected to come on stream by
Q3FY15E. Apart from this, the company is expanding grinding capacity by
7.0 lakh tonne per annum at Gujarat. Both projects are expected to be
complete by the end of FY15E and FY16E, respectively, leading to total
capacity of 9.3 MT in FY15E, 10.0 MT in FY16E and 10.8MT by FY17E
from current capacity of 6.6 MT.
Expect D/E to remain in comfort zone despite aggressive expansion
We expect the net debt-equity ratio to remain in a comfortable zone (i.e.
below 1.0x) despite aggressive expansion undertaken by the company.
As per our estimates, we expect the company to generate free operating
cash flow of ~| 490 crore each over the next three years, which will be
sufficient to fund the balance pending capex.
Timely commissioning of new capacity remains key value driver
On the back of expansions and improvement in demand, we expect
volume CAGR of 20.6% (vs. ~9.3% during FY11-14) in FY14-17E to 9.8
MT. We expect cement EBITDA of | 776/tonne in FY16E and | 788/tonne
in FY17E vs. | 537/tonne in FY14 due to favourable demand-supply matrix
in North India. Further, a strong balance sheet and better efficiency in
terms of cost remain key positives for the company. Hence, we further
upgrade our target price to | 458/share with a BUY rating on the stock (i.e.
at 8.5x FY16E EV/EBITDA, $100/tonne on FY17E capacity of 10.8 MT)

LINK
http://content.icicidirect.com/mailimages/IDirect_JKLakshmi_Q2FY15.pdf