JK Lakshmi Cement soars 15% in 2 days on hopes of margin improvement ahead

Shares of JK Lakshmi Cement moved 6 per cent higher to Rs 662.25 on the BSE in Monday’s intra-day trade due to heavy volumes in an otherwise weak market.

In the past two trading days, the stock of the cement maker has rallied 15 per cent despite the company's weak earnings for the quarter ended September (Q2FY23).

JK Lakshmi Cement is trading close to its 52-week high level of Rs 683.85, which it had touched on September 20, 2022, on hopes of margin improvement going forward. The average trading volumes on the counter more-than-doubled, with a combined around 1.5 million shares having changed hands on the NSE and BSE. In comparison, the S&P BSE Sensex was down 0.08 per cent at 60,901 points, at 02:06 pm.

For Q2FY23, JK Lakshmi Cement’s net sales rose 16 per cent year-on-year (YoY) to Rs 1,303 crore. Profit declined 22.7 per cent YoY to Rs 59.62 crore on higher input costs.

The company said its profitability remained under pressure largely due to an unabated rise in global fuel cost. The company has been able to mitigate part of it by improving operational efficiencies, increasing the volume, optimising product mix and enhancing the premium product sales, it said.

However, analysts said the results were better than estimated, mainly driven by better-than- expected realisations that were up around 17 per cent YoY to Rs 5,651/tonne (up 1.5 per cent QoQ).

This led to lower margin erosion than expected earlier. Now, with the correction in the petcoke/international coal prices, ICICI Securities expects the cost curve to move downwards in the forthcoming quarter while better realizations should help the company to recoup lost margins.

According to analysts at Anand Rathi Share and Stock Brokers, JK Lakshmi’s sharper focus on better realisations aided revenue growth, but the high-cost environment curbed its operating performance. The ongoing UCW expansion is on track and expected to be complete by FY24. Efforts like improving operating efficiency via more renewable energy/alternative fuel and increasing the blended cement share/premium cement would help, the brokerage firm said.

“With a long-term target of improving EBITDA/tonne to Rs 1000, the various efforts: higher renewable energy share, alternative fuel share and reducing the lead distance would be key contributors. We expect EBITDA to clock a 6 per cent CAGR over FY22-25,” analysts said with a ‘buy’ rating on the stock and a target price of Rs 828 per share.