CMP 80.00

Target Price 90.00

ISIN: INE786A01032

DECEMBER 27th

2013

JK LAKSHMI CEMENT LIMITED

Result Update: Q2 FY14

HOLD

Index Details

Stock Data

Sector Cement

BSE Code 500380

Face Value 5.00

52wk. High / Low (Rs.) 171.60/49.05

Volume (2wk. Avg.) 40000

Market Cap (Rs. in mn.) 9416.00

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 20549.50 19522.03 21474.23

EBITDA 4841.60 3422.95 3965.02

Net Profit 1757.40 1136.52 1356.47

EPS 14.93 9.66 11.52

P/E 5.36 8.28 6.94

Shareholding Pattern (%)

1 Year Comparative Graph

JK LAKSHMI CEMENT LTD S&P BSE SENSEX

SYNOPSIS

JK Lakshmi Cement Ltd is one of the most preferred brands in its marketing area with a network of about 2200 dealers spread in India.

On completion of all ongoing projects, the Company would be able to enhance its capacity to more than double to 11.30 million tonne by end of the next financial year from the present capacity of 5.7 million tonne.

Turnover for the quarter stood at Rs. 5008.60 million against Rs. 5515.90 million in the corresponding quarter of the previous year.

During the quarter, Company’s PBIDT fell to Rs. 648.40 million from Rs. 732.40 million in the previous quarter and Rs. 1283.00 million in the corresponding quarter.

PAT stood at Rs. 103.00 million, which is a considerable fall from the PAT of Rs. 508.80 million in Q2 FY13.

During the quarter, the Company has commissioned its AAC Block (Autoclaved Aerated Concrete Block) unit at Jhajjar, Haryana.

The Company improved its fuel consumption to 729 K.Cal/Kg of clinker during the quarter July-September from 738 K.Cal/Kg of clinker achieved during corresponding quarter.

The Company’s Udaipur Cement Works is in full swing and is expected to be completed by the end of next financial year.

Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 8% over 2012 to 2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

JK Lakshmi Cement Ltd 80.00 9416.00 14.93 5.36 0.77 50.00

Everest Industries Ltd 161.65 2422.90 13.66 11.68 0.84 75.00

Ambuja Cements Ltd 184.00 284176.70 7.70 23.88 3.23 180.00

J. K. Cement Ltd 195.90 13698.70 17.16 11.42 0.81 65.00

Recommendation & Analysis - ‘HOLD’

JK Lakshmi Cement has reported results for the quarter July-Sep 2013 has informed increase in its production

and sales by 7% despite depressed market in the Company’s marketing areas of North and West. Its turnover for

the quarter stood at Rs. 5008.60 million against Rs. 5515.90 million in the corresponding quarter of the previous

year and Rs. 5111.10 million in the previous quarter. Company’s profitability was adversely affected by the steep

fall in prices coupled with increase in the freight costs. The fall in cement demand, especially from the

infrastructure and the realty sector is cause of concern. Despite reduction in its cost by improvement in all-

around efficiencies Company’s PBIDT fell to Rs. 648.40 million from Rs. 732.40 million in the previous quarter

and Rs. 1283.00 million in the corresponding quarter. Company’s cash profit for the quarter stood at Rs. 456.60

million and after providing for depreciation of Rs. 339.50 million and Rs. 14.10 million towards tax, the

Company’s PAT stood at Rs. 103.00 million, which is a considerable fall from the PAT of Rs. 508.80 million in the

corresponding quarter of the previous year and Rs. 157.00 million of previous quarter.

The power consumption declined to 72 Kwh from 75 Kwh. Company also improved its fuel consumption to 729

K.Cal/Kg of clinker during the quarter July-September from 738 K.Cal/Kg of clinker achieved during

corresponding quarter.

The Company has reported satisfactory progress on all of its ongoing projects, including the Greenfield Project at

Durg, expansion of grinding capacity at Jhajjar, Haryana, and augmentation of Klin I at Jaykaypuram and Solar

project in Rajasthan. On completion of all these projects the Company would be able to enhance its capacity to

more than double to 11.30 million tonne by end of the next financial year from the present capacity of 5.7 million

tonne. Over FY2012-15E, we expect the company to post a CAGR of 8% and 8% in its top-line and bottom-line

respectively. Hence, we recommend ‘HOLD’ for ‘JK Lakshmi Cement Ltd’ with a target price of Rs. 90.00.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q2 FY14,

JK Lakshmi Cement Ltd is one of the most preferred

brands in its marketing area with a network of about

2200 dealers spread in India, reported its financial

results for the quarter ended 30th Sep, 2013.

Months Sep-13 Sep-12 % Change

Net Sales 4488.70 4914.10 (8.66)

PAT 103.00 508.80 (79.76)

EPS 0.88 4.32 (79.76)

EBITDA 648.40 1283.00 (49.46)

The company’s net profit declines to Rs. 103.00 million against Rs. 508.80 million in the corresponding quarter

ending of previous year, a decrease of 79.76%. Revenue for the quarter declines by 8.66% to Rs. 4488.70 million

from Rs. 4914.10 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 0.88 a share during the quarter, registering 79.76% decrease over previous year period.

Profit before interest, depreciation and tax is Rs. 648.40 millions as against Rs. 1283.00 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure Rs. Millions

Q2 FY14 Q2 FY13

Cost of Material Consumed 839.00 821.00

Purchase of Stock in Trade 407.40 261.60

Power & Fuel 1001.40 1102.00

Employee Benefit Expenses 300.10 291.30

Transport Clearing & Forwarding Charges

1000.20 952.60

Depreciation & Amortization Expense

339.50 324.70

Other Expenses 467.50 502.70

Latest Updates

• During the quarter, the Company has commissioned its AAC Block (Autoclaved Aerated Concrete Block) unit

at Jhajjar, Haryana.

• The Company has completed land acquisition as also finalized equipments for its 6 MW Solar Power Plant in

Rajasthan and expected to be commissioned by last quarter of FY 2013-14.

• The Company’s Udaipur Cement Works is in full swing and is expected to be completed by the end of next

financial year.

COMPANY PROFILE

JK Lakshmi cement Ltd an ISO 9002 certified company, started its operation in the year 1938 in Sirohi district

located in Rajasthan. It manufactures wide range of cement. It is part of diversified JK Group having business

ventures in various segments such as paper, tyres, sugar, agri genetics and clinic research.

JK Lakshmi Cement Ltd is operating a 5.7 million integrated cement manufacturing unit at Sirohi in Rajasthan

along with grinding units in Kalol, Gujarat and now in Jharli, Haryana.

The Company is further setting up a green-field project with an investment of Rs.1200 crores in Durg,

Chhattisgarh. The company also has 11 fully operational State of the Art plants manufacturing Ready Mix

Concrete (RMC). JK Lakshmi Cement enjoys high brand equity in the market and is the first choice of customer in

its various markets. Company has a wide network of 2200 dealers served by 70 cement dumps strategically

located centres.

� Network Places:

The company has a network of 70 cement dumps and over 2200 dealers spread across the states of with

combined capacity of the Company today stands at 5.70 MT per annum.

� Rajasthan

� Gujarat

� Delhi

� Haryana,

� Uttar Pradesh

� Uttaranchal

� Punjab

� Jammu & Kashmir

� Mumbai

� Pune

Products

� JK Lakshmi Cement

• Cement 53 Blended

JK Lakshmi Cement 53 (blended) has a minimum guaranteed strength of 53 MPa, and is used for critical

applications that require the maximum level of strength and durability.

• 53 Grade OPC

The company product 53 Grade O.P.C. with superior compressive strength is ideal for:

� High-rise buildings

� All types of R.C.C. works

� Industrial works

� Pre-stressed concrete work like bridges, silos, etc

� Pre-cast elements such as Railway sleepers and concrete poles.

• 43 Grade OPC

Some applications of JK Lakshmi's 43 Grade O.P.C are:

� Commercial Buildings

� Industrial Constructions

� Multi-storeyed complexes

� Cement concrete roads

� Heavy Duty Floors

� JK Lakshmi Plast

It is a superfine POP (Plaster of Paris) with exceptionally superior whiteness that can color the home

interiors. The brand also guarantees consistency not only in quality, but also in post-sales services such as

technical and logistic support.

� JK Lakshmi Power Mix

The site-mix concrete is dependent on manual labour, on-site mixing and overall supervision of construction.

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 611.90 588.50 588.50 588.50

Reserves and Surplus 11140.00 12009.50 12784.22 14140.69

1. Sub Total - Net worth 11751.90 12598.00 13372.72 14729.19

Non Current Liabilities

Long term borrowings 9082.50 10977.00 11855.16 12566.47

Deferred Tax Liabilities 1233.10 1133.80 1201.83 1141.74

Other Long term Liabilities 307.60 364.20 404.26 436.60

Long Term Provisions 38.60 56.60 73.58 84.62

2. Sub Total - Non Current Liabilities 10661.80 12531.60 13534.83 14229.43

Current Liabilities

Short Term Borrowings 63.40 412.50 511.50 588.23

Trade Payables 1047.40 1287.00 1480.05 1628.06

Other Current Liabilities 4016.10 4224.70 4309.19 4481.56

Short Term Provisions 316.00 382.70 95.68 110.03

3. Sub Total - Current Liabilities 5442.90 6306.90 6396.42 6807.87

Total Liabilities (1+2+3) 27856.60 31436.50 33303.97 35766.48

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 13251.40 14315.40 15000.59 16126.12

Intangible assets 41.90 30.70 34.38 37.82

Capital Work in Progress 2940.50 6880.60 7224.63 7585.86

a) Sub Total - Fixed Assets 16233.80 21226.70 22259.60 23749.80

b) Non-current investments 63.20 308.10 323.51 339.68

c) Long Term loans and advances 3676.50 3591.00 4309.20 4869.40

d) Other non-current assets 18.20 12.10 12.71 13.72

1. Sub Total - Non Current Assets 19991.70 25137.90 26905.01 28972.60

Current Assets

Current Investment 4474.30 3756.50 2854.94 2997.69

Inventories 1200.9 1148.40 1515.89 1743.27

Trade receivables 382.40 501.10 531.17 552.41

Cash and Bank Balances 890.30 126.50 132.83 143.45

Short-terms loans & advances 896.50 744.40 513.64 472.55

Other current assets 20.50 21.70 850.50 884.52

2. Sub Total - Current Assets 7864.90 6298.60 6398.96 6793.89

Total Assets (1+2) 27856.60 31436.50 33303.97 35766.49

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 17181.00 20549.50 19522.03 21474.23

Other Income 634.00 554.50 299.43 314.40

Total Income 17815.00 21104.00 19821.46 21788.63

Expenditure -14293.70 -16262.40 -16398.50 -17823.61

Operating Profit 3521.30 4841.60 3422.95 3965.02

Interest -796.60 -835.40 -760.21 -805.83

Gross profit 2724.70 4006.20 2662.74 3159.19

Depreciation -1297.30 -1489.30 -1399.94 -1469.94

Exceptional Items 0.00 -163.30 0.00 0.00

Profit Before Tax 1427.40 2353.60 1262.80 1689.25

Tax -339.60 -596.20 -126.28 -332.78

Net Profit 1087.80 1757.40 1136.52 1356.47

Equity capital 611.90 588.50 588.50 588.50

Reserves 10514.00 11647.70 12784.22 14140.69

Face value 5.00 5.00 5.00 5.00

EPS 8.89 14.93 9.66 11.52

Quarterly Profit & Loss Statement for the period of 31st Mar, 2013 to 31st Dec, 2013E

Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 5357.70 4569.20 4488.70 4713.14

Other income 234.40 30.00 85.90 73.87

Total Income 5592.10 4599.20 4574.60 4787.01

Expenditure -4405.10 -3866.80 -3926.20 -3911.90

Operating profit 1187.00 732.40 648.40 875.11

Interest -182.20 -199.70 -191.80 -197.55

Gross profit 1004.80 532.70 456.60 677.55

Depreciation -494.30 -355.00 -339.50 -353.08

Exceptional Items -163.30 0.00 0.00 0.00

Profit Before Tax 347.20 177.70 117.10 324.47

Tax -13.80 -20.70 -14.10 -41.53

Net Profit 333.40 157.00 103.00 282.94

Equity capital 588.50 588.50 588.50 588.50

Face value 5.00 5.00 5.00 5.00

EPS 2.83 1.33 0.88 2.40

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 8.89 14.93 9.66 11.52

EBITDA Margin (%) 20.50% 23.56% 17.53% 18.46%

PBT Margin (%) 8.31% 11.45% 6.47% 7.87%

PAT Margin (%) 6.33% 8.55% 5.82% 6.32%

P/E Ratio (x) 9.00 5.36 8.28 6.94

ROE (%) 9.78% 14.36% 8.50% 9.21%

ROCE (%) 23.77% 26.80% 18.74% 19.49%

Debt Equity Ratio 0.82 0.93 0.92 0.89

EV/EBITDA (x) 5.12 4.27 6.32 5.66

Book Value (Rs.) 90.91 103.96 113.62 125.14

P/BV 0.88 0.77 0.70 0.64

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.80.00, the stock P/E ratio is estimated 8.28 x FY14E and 6.94 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.9.66 and Rs.11.52

respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 8% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.32 x for FY14E and 5.66 x for FY15E.

� Price to Book Value of the stock is expected to be at 0.70 x and 0.64 x respectively for FY14E and FY15E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.90.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

Cement is one of the core industries which plays a vital role in the growth and development of a nation. The

cement industry in India has been expanding significantly on back of increasing infrastructure activities and

demand from housing sector.

Keeping in line with the technological world, the Indian cement industry has transited itself into a more

advanced one. At present, the Indian cement industry is positioned on the second rank globally and comprise of

183 large and 365 mini cement plants.

Moreover, the Indian cement majors, including ACC Ltd, Shree Cement Ltd and Ultratech, have signed a co-

operation pact to support low-carbon investments in India. The pact was signed in Geneva with member

companies of the World Business Council (WBC) for Sustainable Development’s Cement Sustainability Initiative

and International Finance Corporation (IFC). The roadmap will pose as a possible transition path for the Indian

cement industry to reduce its direct emissions by 18 per cent by 2050. This is the first roadmap to focus on one

specific industrial sector in a single country, as per a WBC release.

Market Size

A RNCOS report titled “Indian Cement Industry Outlook 2015” estimated that the total installed capacity of

cement in India will increase with a compound annual growth rate (CAGR) of around 7 per cent during 2012-13

to 2014-15.

The production of cement has increased at 10 per cent CAGR over FY07-11. The market size of the industry is

expected to grow from 223.4 MTPA during FY12 to 550 MTPA by FY20. The cement companies in India are

receiving full attention from the private equity (PE) firms for funding their business plans. India’s cement sector

is with an overall capacity of 350 MTPA. The companies including UltraTech, ACC, Ambuja Cements, Jaiprakash

and Shree Cement control almost half the country’s cement market. In the 11th Five Year Plan (2007-12), the

industry added 120 MT of new capacities and is expected to reach close to 470 MT by 2017.

Investments

The cement and gypsum products sector has attracted foreign direct investments (FDI) worth US$ 2,656.29

million between April 2000 to June 2013, according to the data published by the Department of Industrial Policy

and Promotion (DIPP).

• Malaysia’s Construction Industry Development Board (CIDB) has expressed interest in the construction

of 300 km long Agra-Lucknow expressway project, linking the Taj city with the state capital, at an

estimated cost of around Rs 11,000 crore (US$ 1.78 billion) in Uttar Pradesh

• The Government of Jammu and Kashmir (J&K) will set up a cement plant with 1,000 tonnes per day

capacity with the aim of capturing local market share for the cement

• Ultratech Cement has initiated steps to set up a Rs 2,500 crore (US$ 405.38 million) Greenfield cement

plant in Tamil Nadu (TN) and will add to the 36 MT cement production capacity in TN. The Company also

plans to set up a 5.5 MTPA cement plant with 4.5 MT clinker production, 75 megawatt (MW) captive

power plant and a waste heat recovery facility of about 15 MW

• Orient Cement Ltd has received environmental clearance for its three MTPA cement plant at Chittapur in

Gulbarga district of Karnataka

• Shiva Cement plans to enhance its production capacity to one MTPA with an investment of Rs 270 crore

(US$ 43.78 million)

• ACC Ltd, aims to enter the north-coastal Andhra Pradesh market through its product called Coastal Plus

particularly suited to coastal areas as it is corrosion-proof, according to Mr Kurian Chandapillai, Director

(sales) of the eastern region. The company had acquired a small cement (Encore) in the Visakhapatanm

Special Economic Zone (SEZ) and spent Rs 80 crore (US$ 12.97 million) on it, making it a 30,000 tonne

per month plant

Government Initiatives

During the 12th Five Year Plan period (2012-17) the industry is estimated to add a capacity of 150 MT.

Giving impetus to the market, the Government of India plans to roll out public-private partnership (PPP) projects

worth Rs 1 trillion (US$ 16.33 billion) over the next six months. The Principal Secretary in the Prime Minister's

Office (PMO) will monitor these projects. Also, the steering group appointed by Dr Manmohan Singh, Prime

Minister of India, to accelerate infrastructure investments, has set deadlines for the award of projects such as

Mumbai rail corridor and Navi Mumbai Airport, among others.

With focus on the green initiatives, Goa State Pollution Control Board (GSPCB) signed a memorandum of

understanding (MoU) with Vasavdatta Cement, a company with its plant in Karnataka. The firm would use the

plastic waste collected by the state agencies and village panchayats from Goa to use the waste as fuel for its

manufacturing plant.

Road Ahead

Indian cement industry is globally competitive as the industry witnessed healthy trends such as cost control,

continuous technology upgradation and increased construction activities.

With the ever increasing industrial activities, real estate, construction and infrastructure, in addition to the onset

of various Special Economic Zones (SEZs) being developed across the country, there is a demand for cement.

In addition, it is estimated that India needs about US$ 1 trillion from 2012-13 to 2016-17 to fund infrastructure

such as ports, airports and highways to boost growth, thereby promising a good outlook for the industry.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any

financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly

available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be

relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss

or damage that may arise to any person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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