JK Lakshmi Cement - Better Geo-Mix To Drive Volume Growth, Earnings: Motilal Oswal

Motilal Oswal Report

JK Lakshmi Cement Ltd. is among the least cost producers in the industry, backed by lower energy consumption, higher green power share (waste heat recovery system and solar), and efficient management of the logistics. Given the early cost-cutting attempts, the company’s cost curve places it higher than its peers.

Despite lower cost, JK Lakshmi's profitability was significantly lower than peers’ average, mainly due to weak realisations. However, JK Lakshmi Cement 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 Q4 FY23 versus ~15% in FY20-end).

As a result, Ebitda/tonne gap versus peers’ average narrowed to Rs 163/tonne in FY23 from Rs 467/429 per tonne in FY17/FY18.

JK Lakshmi Cement is currently expanding capacity in its subsidiary, Udaipur Cement Works Ltd. It is a brownfield expansion with a clinker/cement capacity of 1.5 million tonnes per annum/2.5 mtpa in Udaipur, Rajasthan (North) at an estimated capex of Rs 16.5 billion. It spent Rs 8.5 billion till March 2023 and expects clinker/cement capacity to be commissioned by Q3 FY24/Q2 FY25.

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