Fundamental Analysis of JK Lakshmi Cement: India’s cement industry is seeing consolidation as billionaire Gautam Adani purchased Ambuja Cements and its subsidiary ACC. Furthermore, other companies bought assets from their smaller competitors or announced CAPEX plans. Amid these developments, can a cement stock be a good investment?
In this article, we’ll attempt to answer that by performing a fundamental analysis of JK Lakshmi Cement, a small cap cement producer.
Fundamental Analysis of JK Lakshmi Cement
We’ll being our study by getting ourselves acquainted with the history, business and scale of operations of JK Lakshmi Cement. Next, we’ll learn about the domestic cement industry landscape. After that, we’ll race through the financials of the stock. A highlight of the future plans and a summary conclude the article at the end.
Founded in 1982 with a small capacity of 0.05 million tones, JK Lakshmi Cement (JKLC) Ltd. is one the leading cement companies in India. It is part of the multi-billion dollar JK Group which has diversified business interests from cement, paper, and power transmission to dairy products and even textiles.
The company is one of the low-cost producers in the domestic industry. It is a leading cement-producing company with manufacturing sites in Rajasthan, Chattisgarh, Gujarat, Haryana and Odisha.
JK Lakshmi Cement makes cement of various grades including OPC 43, OPC 53, Portland Pozzolana cement, Portland Slag cement, and composite cement.
In addition to manufacturing and selling cement, it also produces some value-added products such as ready-mix concrete, gypsum plasters, and concrete blocks.
JKLC has a total production capacity of approximately 14 million tons. It serves North, East, West, and Central parts of India through its two integrated cement plants, four grinding units, twelve RMC plants and one AAC block unit.
We got a good understanding of the business for our fundamental analysis of JK Lakshmi Cement. Let us now move ahead to learn about the cement industry landscape in India.
Cement is a heavyweight commodity. Since its transportation is costly, the cement demand of any region is serviced by the plants located near it. Thus, the cement companies in India control different regional markets respectively with the larger players having near pan-India presence.
Overall, the nation is the second largest manufacturer of cement across the globe, accounting for over 7% of the total installed capacity. As for the industry growth, the installed capacity is projected to touch the 747 million tonnes mark by FY27 from 600 million tonnes at present.
The demand growth will be primarily driven by infrastructure and housing segments in the future. Presently, rural housing and urban housing make up 35-37% and 24-26% of the domestic cement demand. The share of infrastructure and industrial/commercial segments stands at 26-18% and 12-14% respectively.
The long-term prospects for the sector remain good as the Indian cement market is heavily underpenetrated. The nation’s per capita consumption of cement at 250-270 kg is well below the world average of 500-550 kg and China’s consumption of 1650-1700 kg respectively.
JK Lakshmi Cement – Financials
Revenue and Net Profit Growth
The revenues of the cement producer grew at a CAGR of 8.37% over the last five fiscals from Rs 4,316 crore in 2019 to Rs 6,452 crore in FY23.
The annualised growth computation for net profit (Rs 360 crore in FY23) is not relevant on account of a lower base (Rs 41 crore PAT because of elevated energy costs and high-interest payments) in FY19. Overall, in FY23 the net profit of the company was lower because of higher power and fuel charges.
The table below showcases the operating revenue and net profit growth of JK Lakshmi Cement over the last five financial years.
|Fiscal Year||Operating Revenue||Net Profit|
(figures in Rs Cr)
Production of cement consumes a lot of power making it a key expense item for any cement company. The energy prices went up in the last two fiscals compressing the profit margins of the domestic cement producers.
The figures below present the operating profit margin and net profit margin of JK Lakshmi Cement for the last few years.
|Fiscal Year||Operating Profit Magin||Net Profit Margin|
(figures in %)
During the study period, higher profits translated into higher profitability for the company with the return ratios touching the 20% mark in FY21. However, the figures have come down since then. The return on capital employed (RoCE) and return on equity (RoE) of the cement producer stood at 14% and 13% respectively in FY23.
The figures below represent the RoCE and return on equity RoE of JK Lakshmi Cement for the last five fiscals.
(figures in %)
The management of JK Lakshmi Cement has done a fine job of managing the capital structure over the past five years. The debt-to-equity ratio of the company has come down even as the overall capacity expanded.
The debt-to-equity ratio of the company stood at 0.66 at the end of FY23. The interest coverage ratio was lower at 6.72 as compared to the previous fiscal on account of the decrease in profit after tax.
The table below highlights the interest coverage ratio (times) and debt/equity ratio of JK Lakshmi Cement for the previous five fiscal years.
|Fiscal Year||Interest Coverage||Debt / Equity|
Future Plans of JK Lakshmi Cement
So far we looked at the previous fiscals’ data for our fundamental analysis of LK Laksmi Cement. In this section, we’ll try to get some sense of what lies ahead for the company and its investors.
- JK Lakshmi Cement is undergoing 2.5 million tonnes at its subsidiary UCWL at a cost of Rs 1,650 crore. The project is expected to complete by FY24.
- The management has projected the overall installed production capacity to touch the 17.9 million tonnes mark by FY24 from 14 million tonnes at present.
Fundamental Analysis of JK Lakshmi Cement – Key Metrics
We are almost at the end of our fundamental analysis of JK Lakshmi Cement. Let us take a quick look at the key metrics of the stock.
|CMP||₹686||Market Cap (Cr.)||₹8,018|
|Book Value||238||Price to Book Value||3.04|
|Promoter Holding||46%||Dividend Yield||0.7%|
|Debt to Equity||0.66||Interest Coverage||6.7|
|Net Profit Margin||5.70%||Operating Margin||10.40%|
As we conclude our fundamental analysis of JK Lakshmi Cement, we can say that the company is well-positioned to take advantage of any upcycle as energy prices normalise. It has installed capacity in place with more expansion happening.
However, with the 5-yr returns at 135%, do you think the future profits are already discounted in the stock price? Or investors can expect higher gains in the future? What are your views on the nation’s cement industry and the company? How about we continue this conversation in the comments below?
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Written By Vikalp Mishra
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