Some hopes for JK Lakshmi Cement investors after sluggish Q2 performance

Also, as with competitors, cost inflation weighed on the company’s operating performance. cost per tonne basis ₹4,119 were impacted by negative operating leverage, higher fuel and freight costs by more than 8% and over 15% sequentially.

Analysts at Prabhudas Lilladher Pvt Ltd said in a report, “Given its high reliance on prices, we believe margins for the company will remain limited due to significant cost pressures, limited scope for cost reduction and high lead distance.”

However, analysts say that going forward, investors in this stock should look at the company’s expansion plans, which is being seen as a trigger for the stock. “JKLC is facing regional capacity mismatch, with capacity constraints in North India forcing it to buy clinker in that region, while it is selling clinker in East India due to surplus. The next set of capital expenditure by its subsidiary Udaipur Cement Works (UCW) is expected to take another 2-2.5 years and hence, in our opinion, the volume growth and profitability will lag behind the industry standards,” said analysts at Nirmal Bang Securities Ltd. Said in a report.

Analysts say its 2.5mtpa expansion project at UCW will address development concerns. Mtpa is short for million tonnes per year. The expansion will be executed in phases over the next three years and is expected to cost ₹1,400 crore, to be funded through a mix of debt and equity. In addition, it has a 10 MW Waste Heat Recovery System plant at Sirohi, which is likely to be commissioned by December 2021, which will further bring down the cost of electricity.

“At current market prices, the stock has a free cash flow yield of around 9%. Apart from expansion, its cost competitiveness (one of the lowest cost producers) will lead to an improvement in the return ratio profile,” said analysts at JM Financial Institutional Securities Ltd.