JK Lakshmi Cement hosted a conference call on July 28, 2023. In the conference call the company was represented by Mr Arun Kumar Shukla-President & Director and Mr Sudhir Bidakar-CFO.

Key takeaways of the call

Clinker capacity utilization stood at 97% and cement capacity utilization stood at 85% in Q1FY2024 on a standalone basis.

Revenues of the company grew by 4.6% YoY on consolidated basis. The management said that it could have done better with respect to volumes; operating cost has improved but could have been better and employee expenditure which was higher than the peers and is the area where it could have been performed better.

Volumes were impacted due to unseasonal rains in Gujarat and Rajasthan. Operating cost was impacted in the quarter due to break down of one WHRS resulting in power cost impact.

Power and fuel cost was in line with industry and there is further scope for improvement.

Growth in Eastern region for the company was not there as the company did not have clarity on railway sliding. However, the company has got approval for railway sliding and this will help the company to reach out to higher realization regions in next 9-12 months.

On standalone basis of the total revenue of Rs 1633 cr, non-cement sale stood at Rs 133 cr. Of the non-cement sales Rs 63 cr was RMC sales. Non cement sales margin stood at 4% in Q1FY2024 when compared to 5% in Q4FY2023.

Clinker production at standalone basis stood at 16.65 lac ton and at Udaipur Cement stood at 3.88 lac ton in Q1FY2023

Trade sales stood at 55% in Q1FY2024.

Rail mix: The company is very heavy on road with 90% being road and 10% being rail.

Lead distance:Lead distance for the company stood at 430 kms in Q1FY2024.

Fuel cost stood at Rs 2.23 per Kcal in Q1FY2024 and the same stood at Rs 2.42 per K cal in Q4FY2023. The company expects the same to reduce to 2.15 per k cal in Q2FY2024.

Fuel mix: coal constituted 40%, petcoke 43% and the balance from others including biomass.

Inventory: The company has fuel inventory which will last for 100 days.

Debt: The company had debt of Rs 770 cr and cash balance of Rs 900 cr on standalone  basis and Rs 1950 cr debt and cash balance of Rs 950 cr on consolidated basis as of June.

At peak debt the company will be comfortable at 3.5-4x Debt/EBITDA. But the company will be fine for few years if the ratio crosses the upper boudry.

Capacity expansion: Capacity of the company will increase to 18 million ton once Udaipur Cement Works expansion is completed and plans to take it to 30 million ton by 2030.

The company plans to take it through both brown field and green field expansion.

Inorganic expansion: The company will continue to evaluate the opportunities and will look at acquisition if it comes at right value, add synergy to the company and add value.

Valuation will depend on the market which it caters to.

CAPEX: The company will incur CAPEX of around Rs400 crore in FY2024 of which Rs 100-115 crore is towards railway sliding. OF this the company has incurred Rs 50 crore in Q1FY2024.

Tax rate: The company has Mat credit entitlement. The same has reduced to Rs 140 cr from earlier Rs 200 cr.The company will graduate to 25% tax rate in next two years.

Fund raising: The company has passed to rasie funds to the tune of Rs 2500 cr which is an enabling resolution and the company can raise the funds in one year time.

Guidance: The company has retained its volume growth of 19% on consolidated basis for FY2024 and EBITDA per ton of Rs 1000 per ton in next 18 months.

Volume growth will be low in Q2 however likely to improve from October  once clinker plant at UCW will be commissioned. Volume growth will be driven by higher utilization and also through tie up  with third party grinding unit which the company has.

Drivers for margin improvement include a)increase in geo mix towards favorable market mainly North and West and others. It has increased to 75:25 as against earlier of 70:30. Also in the favorable market to sell volumes in regions where realization is better; b) increase in premium product share-the same has increased to 26-27% of trade sales from earlier 21-22% share; company plans to increase in share of blended cement from 66-67% to 75%; d) lead and other supply chain efficiencies through use of technology leading to lower lead distance ;e) increase AFR capacity from TFR 4% to 10% which will be commissioned by Oct and to source 40 MW of Solar Power  for its Durg Cement Plant from third party. Power purchase from solar plant will be at Rs 5 per unit when compared to Rs 7.5 per unit currently.

Management Commentary:

Commenting on the Results of the Company, Mrs. Vinita Singhania, Vice Chairman & Managing Director (VC&MD) of the Company said “the Operations of the Company during the Quarter were impacted by unprecedented rain & cyclone Biparjoy in the State of Gujarat & Rajasthan”.