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JK Lakshmi Cement Ltd’s leverage has begun to fear analysts, with a few of them valuing it at a slight low cost to its historic common. The firm plans to tackle this concern, and has aimed to repay its debt of ₹400 crore over FY21 and FY22.
At the top of the June quarter, its standalone gross debt stood at ₹1,500 crore and internet debt was at ₹800 crore. Given the short-term challenges on demand and pricing fronts, assembly this goal might be a tall ask, stated analysts.
In a post-earnings convention name, the administration stated its enlargement plan within the north has been placed on maintain for now. Depending on how the lockdown state of affairs unfolds, it might announce an enlargement of two.5 million tonnes each year (MTPA) brownfield venture by subsequent quarter.
Analysts cautioned that the rise in capital expenditure will hold debt elevated. Also, the stability sheet will stay beneath stress within the preliminary part until capability stabilizes at this plant.
It needs to be famous that rivals are ramping up capacities within the north, so JK Lakshmi Cement might not be in a position to profit from any potential demand enchancment.
As a results of the elevated competitors, it might find yourself dropping market share and volumes. The administration expects volumes to be flat in FY21 year-on-year.
Moreover, realizations are anticipated to be muted, hit by oversupply in jap India and extreme competitors within the western markets. It will get greater than 50% volumes from the east, adopted by the west and north.
Dealers channel verify by Kotak Institutional Equities confirmed that cement costs within the east declined by ₹three per bag to ₹338 in August.
“Heavy rainfall within the area led to a fall in rural demand. Moreover, rising unfold of covid-19 within the area has led to stringent lockdowns hampering development exercise. Shortage of migrant labour and the onset of festive season are additionally impacting demand. Dealers count on commerce costs to stay beneath stress within the near-term,” stated the Kotak report on 24 August.
September is a seasonally weak quarter for the sector, so realizations might be subdued on this quarter as nicely.
Additionally, its apply of lending to the holding firm, though restricted to ₹40 crore, provides to the discomfort, analysts stated. As per the administration, this cash was positioned by way of inter-corporate deposit of the group firm for a interval of 1 12 months ended August. The firm might redeploy it in the same instrument subsequent 12 months, it added.
The inventory trades at a one-year ahead EV/Ebitda of round 5 instances, exhibits Bloomberg’s estimates. EV stands for enterprise worth. Ebitda is brief for earnings earlier than curiosity, tax, depreciation and amortization.
Given its leveraged stability sheet and unfavourable geographical combine, valuations might not enhance in a rush.
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