JK Lakshmi Cement Result Updated

8/3/2019 JK Lakshmi Cement Result Updated

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 3QFY2012 2QFY2012 % chg qoq 3QFY2011 % chg yoyNet revenue 440 354 24.3 315 39.5Operating profit 94 41 128.7 25 279.0

OPM (%) 21.4 11.6 977bp 7.9 1,352bp

Net profit 49 6 658.7 5 970.4Source: Company, Angel Research

JK Lakshmi Cement (JKLC) reported an impressive performance for 3QFY2012.

The companys bottom line came in at `49cr as against `4.6cr in 3QFY2011.

Bottom-line growth was driven by strong 26.3% growth in realization, reduction inraw-material and power and fuel costs on per tonne basis and 59.2% growth in

other income to `14.8cr. We recommend a Buy on the stock.OPM at 21.4%, up 1,352bp yoy: During 3QFY2012, JKLC registeredtop-line growth of 39.5% yoy to `440cr on account of healthy 12.8% yoy growth in

dispatches to 1.22mn tonnes and strong realization growth of 26.3% yoy to

`3,359/tonne. Despite higher freight costs and other expenses on per tonne basis, the

companys operating margin increased by 1,352bp yoy to 21.4%, aided by strong

realization growth and 8% yoy savings in power and fuel cost on per tonne basis.

JKLCs operating profit rose by 279.0% yoy during the quarter to `94cr. Even after a

75.9% yoy increase in interest and higher tax expense (`12cr as against negative tax of

`4cr in 3QFY2011), the bottom line came in at `49cr, aided by strong operating

performance as well as a significant increase in other income.

Outlook and valuation: Going forward, we expect JKLC to post a healthy 19%CAGR in its top line over FY2011-13E, aided by a 12.4% CAGR in dispatches over

the period. At the CMP, the stock is trading at cheap valuations in terms of

replacement cost (EV/tonne of US$29 on FY2013E capacity), even after considering

its presence in unfavorable locations. We value the stock at EV/tonne of US$35 on

FY2013E capacity to arrive at a target price of `79. Hence,we recommend a Buyrating on the stock.Key financialsY/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet sales 1,491 1,319 1,629 1,868% chg 21.7 (11.5) 23.5 14.7

Net profit 241 59 123 149% chg 35.0 (75.5) 107.7 21.0

FDEPS (`) 19.7 4.8 10.0 0.0OPM (%) 28.5 13.9 18.5 20.4

P/E (x) 3.4 19.7 5.7 4.7

P/BV (x) 0.8 0.8 0.7 0.6

RoE (%) 25.3 3.9 11.7 13.3

RoCE (%) 19.1 4.7 9.1 10.5EV/Sales (x) 0.6 0.9 0.7 0.5

EV/Tonne (US$) 34 44 35 29

EV/EBITDA (x) 2.2 6.7 3.9 2.7

Source: Company, Angel Research

BUYCMP `65

Target Price `79

Investment Period 12 months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 44.2

MF / Banks / Indian Fls 15.7

FII / NRIs / OCBs 7.2

Indian Public / Others 32.8

Abs. (%) 3m 1yr 3yr

Sensex 0.8 (0.4) 90.4

JKLC 40.8 42.2 232.9

Reuters Code JKLC.BO

JKLC@IN

BSE Sensex 17,707

Nifty 5,368

Avg. Daily Volume 46,260

Face Value (`) 5

Beta 1.1

52 Week High / Low 67/36

Cement

Market Cap (` cr) 792

V Srinivasan022-39357800 Ext. 6831

[email protected]

Sourabh Taparia022-39357800 Ext. 6872

[email protected]

JK Lakshmi CementPerformance Highlights

3QFY2012 Result Update | Cement

February 8, 2012


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JKLakshmiCement | 3QFY2012 Result Update

February 8, 2012 2

Exhibit 1:3QFY2012 performanceY/E March (` cr) 3QFY2012 2QFY2012 % Chg 3QFY2011 % Chg 9MFY2012 9MFY2011 % ChgNet operating income 440 354 24.3 315 39.5 1,191 905 31.6Net raw-material costs 66 67 (1.5) 48 37.9 186 128 45.7(% of sales) 15.1 19.0 15.3 15.6 14.1

Power & fuel 108 97 11.4 105 3.3 314 288 8.8

(% of sales) 24.6 27.4 33.3 26.3 31.9

Staff costs 24 22 6.9 17 38.9 68 56 21.1

(% of sales) 5.3 6.2 5.4 5.7 6.2

Freight & forwarding 83 76 8.3 68 22.3 238 187 27.3

(% of sales) 18.8 21.6 21.4 20.0 20.7

Other expenses 65 50 30.0 53 22.7 170 136 24.9

(% of sales) 14.8 14.1 16.8 14.3 15.1

Total Expenditure 346 313 10.5 291 19.1 977 796 22.7Operating Profit 94 41 128.7 25 279.0 215 109 97.0OPM 21.4 11.6 977 7.9 1,352 18.0 12.0 597

Interest 22 20 9.9 13 75.9 64 36 79.2

Depreciation 26 26 0.0 21 20.4 76 62 23.3

Other income 15 12 19 9 59 28 17 64.4

PBT (incl. Extr. Items) 61 8 679.8 0 103 29 257.9Provision for taxation 12 1 (4) 24 2 1,509

(% of PBT) 19.5 17.2 23.5 5.2

Reported PAT 49.2 6.5 658.7 4.6 970.4 78 27 188.8PATM 11.2 1.8 1.5 6.6 3.0

EPS (`) 4.0 0.5 0.4 6.4 2.2


Exhibit 2:Financial performance


324

266

315

417397

354

440

17 6 532 23 6

49

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

0

100

200

300

400

500

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

(%)(`cr)

Net Operating Income Net Profit OPM (RHS)


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February 8, 2012 3

Exhibit 3:3QFY2012 Actual vs. Angel estimates(` cr) Actual Estimates Variation (%)Net Sales 440 380 15.8

Operating Profit 94 48 95.2OPM (%) 21.4 12.7 870bp

Net Profit 49 9 447.1


Performance highlights

Top line up 39.5% yoy, driven by higher realization and dispatchesDuring 3QFY2012, JKLC registered 39.5% yoy growth in its top line to `440cr on

account of a 26.3% yoy improvement in realization to `3,359/tonne and a 12.8%

yoy increase in dispatches to 1.22mn tonnes. On the operating front, the

companys OPM improved strongly by 1,352bp yoy to 21.4% due to strong

realization growth and significant savings in power and fuel cost.

Per tonne analysis

In 3QFY2012, JKLCs power and fuel costs per tonne fell by 8.5% yoy to `886 on

account of reduction in power consumption per tonne of cement to 77KW from

80KW a year ago and use of cheaper biomass as fuel. Freight cost per tonne grew

by 8.4% yoy to `677 due to higher costs of petroleum products, increased railway

freight charges and reduced lead distance. Other costs increased by 8.8% yoy to

`531 per tonne. Operating profit per tonne stood at `770 during the quarter, up

236.0% yoy.

Exhibit 4:Per tonne analysis(`) 3QFY12 2QFY12 3QFY11 chg (%) yoy chg (%) qoqRealization/tonne 3,359 2,920 2,660 26.3 15.0

Raw-material cost/tonne 543 598 444 22.2 (9.2)

Power and fuel cost/tonne 886 862 968 (8.5) 2.7

Freight costs/tonne 677 678 624 8.4 (0.2)

Other costs/tonne 531 443 488 8.8 19.8

Operating profit/tonne 770 365 229 236.0 110.8



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February 8, 2012 4

Conference call highlights

JKLC has planned a total capex of `1,450cr to be spent over the next threeyears, which would be incurred towards setting up a 0.5mtpa split grinding

unit at Jhajjar in Haryana, 2.7mtpa greenfield plant at Durg in Chhattisgarh

with split grinding units in Orissa and Jharkhand and kiln capacity

augmentation. The planned cost for Jhajjar plant and kiln capacity

augmentation is ~`100cr each, while for Durg plant it is `1,250cr. The

company expects Jhajjar and Durg plants to come on stream by March 2012

and October 2013, respectively, and the companys total capacity then would

be raised to 8mtpa.

During 3QFY2012, the companys region-wise sales mix was 35% in NorthIndia, 30% in Gujarat, 30% in Rajasthan and balance in Maharashtra.

The company is also planning to revive JK Cement Udaipur (a group companycurrently under BIFR, having ~1.4mtpa cement plant) at and expects therevival to be completed by April 2014.

JKLC has announced an equity share buyback up to an amount of `97.5cr ata maximum price of `70 per equity share by conducting open market

purchases in Stock Exchanges. Management expects the buyback process to

take place in the next few months.

Cement demand scenario in 3QFY2012

During the quarter, all-India cement demand grew strongly by 13.2% yoy, taking

9MFY2012 growth to 5.4% yoy. During the quarter, cement demand growth in the

Western region has been quite impressive at 25% yoy and management expects

the region to witness double-digit growth going forward. Even Northern regions

cement demand has been quite strong at 16.1% yoy due to the pre-election effect.

Among all states in the Northern and Western region in 3QFY2012, Gujarat

posted the highest demand growth of 31.3% yoy, followed by Maharashtra (20.3%

yoy), Rajasthan (16.6% yoy) and Haryana (15.4% yoy).

Exhibit 5:All-India and region-wise demand scenario


Exhibit 6:North and West India state-wise demand scenario


5.4

10.2

4.8

(4.3)

16.7

7.6

13.2

16.1 15.1

3.2

25.0

11.5

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Al l India Northern

region

Eastern

region

Southern

region

Western

region

Central

region

(%)

9MFY2012 3QFY2012

8.4

13.314.8

12.4

(6.5)

19.7

14.713.915.4

13.4

16.6

(3.9)

31.3

20.3

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Uttarakhand

Haryana

Punjab

Rajasthan

Himachal

Pradesh

Gujarat

Maharashtra

(%)

9MFY2012 3QFY2012


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February 8, 2012 5

Investment arguments

Rising captive power usage to improve profitability: JKLC has a power purchasetie-up with VS Lignite for 21MW power for the next 20 years at `3.2/unit (closer to

its captive power cost) in addition to its current total captive power capacity of

66MW, which has been expanded recently by 30MW. Thus, effectively the

company has access to 87MW of cheaper power, which is more than sufficient for

its current capacity.

Strong balance sheet: As of September 2011, JKLC's debt stood at `997cr, ofwhich `94cr was on account of deferred sales tax (interest free). The company's

cash and investments stand at `550cr. Thus, JKLC's balance sheet is well placed,

with net debt/equity around 0.33x, which will help the company in its plan to raise

debt of `990cr, out of the total capex outlay of `1,450cr.

Unfavorable plant locations to affect profitability: JKLC has 79% of its totalcapacities in Rajasthan, which is state-wise India's second biggest capacity cluster,

with 44.8mtpa of total capacity in FY2011. Capacities in Rajasthan face a huge

demand-supply gap even after catering to surplus demand of nearby supply-deficit

states (Haryana, Punjab, NCR, Chandigarh and UP), apart from meeting its own

demand.

Outlook and valuation

Going forward, we expect JKLC to post a healthy 19% CAGR in its top line over

FY2011-13E, aided by a 12.4% CAGR in dispatches over the period. At the CMP,

the stock is trading at cheap valuations in terms of replacement cost (EV/tonne ofUS$29 on FY2013E capacity), even after considering its presence in unfavorable

locations. We value the stock at EV/tonne of US$35 on FY2013E capacity to arrive at

a target price of `79. Hence,we recommend a Buy rating on the stock.


6/12


February 8, 2012 6

Exhibit 7:Change in estimatesParameter FY2012E FY2013E(` cr) Earlier Revised Var. (%) Earlier Revised Var. (%)Net Sales 1,483 1,629 9.8 1,751 1,868 6.7

Operating Exp 1,238 1,327 7.2 1,450 1,488 2.6

Operating Profit 245 301 22.8 301 380 26.4

Depreciation 99 99 0.0 104 106 2.0

Interest 35 36 3.7 38 32 (15.5)

PBT 96 154 59.5 127 198 56.4

Tax 24 31 27.8 32 50 56.7

PAT 72 123 70.0 95 149 56.3

Source: Angel Research

Exhibit 8:Key assumptionsEarlier estimates Revised estimates

FY12E FY13E FY12E FY13EInstalled capacity (mtpa) 4.7 5.3 5.3 5.3

Growth (%) - 11.6 11.6 -

Utilization (%) 91 92 90 99

Raw-material costs/tonne(`) 706 701 648 628

Power cost/tonne(`) 994 1,026 982 972


Exhibit 9:Recommendation summaryCompany Reco. CMP Tgt. Price Upside FY2013E FY2013E FY2011-13E FY2013E FY2013E

(`) (`) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%) ACC* Neutral 1,383 - - 3.3 20.5 6.4 20.9 16.7

Ambuja Cements* Neutral 177 - - 3.0 19.3 6.9 20.4 16.5

India Cements Neutral 96 - - 0.8 9.8 174.0 7.4 8.5

JKLC Buy 65 79 22.0 0.6 4.7 104.4 10.5 13.3Madras Cements Neutral 140 - - 1.4 8.8 34.0 13.1 17.0

Shree Cement Neutral 2,425 - - 3.3 20.1 27.6 15.8 17.7

UltraTech Neutral 1,385 - - 2.7 16.7 27.1 17.5 17.1

Source: Company, Angel Research; Note: *December year ending


7/12


February 8, 2012 7

Exhibit 10:One-year forward EV/Tonne band

Source: Company, Angel Research; Note: Valuation in US$ per tonne

0

5,000

10,000

15,000

20,000

25,000

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

EV

(mn)

EV/tonne $30 $50 $70 $90


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February 8, 2012 8

Profit and loss statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ETotal operating income 1,108 1,225 1,491 1,319 1,629 1,868% chg 31.3 10.6 21.7 (11.5) 23.5 14.7Total expenditure 756 914 1,066 1,136 1,327 1,488

Net raw material 136 182 234 204 277 298

Other mfg. costs 246 306 290 392 419 465

Personnel 56 69 85 81 89 98

Other 319 356 457 459 543 626

EBITDA 351 311 425 183 301 380% chg 37.2 (11.6) 36.7 (56.9) 64.4 26.2

(% of net sales) 31.7 25.4 28.5 13.9 18.5 20.4

Depreciation & amortization 59 69 80 85 99 106

EBIT 293 241 345 99 202 274% chg 38.3 (17.5) 42.7 (71.4) 105.3 35.6

(% of net sales) 26.4 19.7 23.1 7.5 12.4 14.7

Interest & other charges 54 50 55 60 85 108

Other income 33 34 35 21 36 32

(% of PBT) 13.1 14.9 10.5 26.8 23.6 16.1

Recurring PBT 272 226 324 60 154 198% chg 51.9 (16.9) 43.7 (81.6) 156.8 29.0

Extraordinary expense/(Inc.) 21 (1) (6) (19) - -

PBT (reported) 251 227 331 79 154 198Tax 27 48 90 20 31 50

(% of PBT) 10.7 21.2 27.1 25.0 20.0 25.0

PAT (reported) 224 179 241 59 123 149ADJ. PAT 245 178 235 40 123 149% chg 37.4 (27.4) 32.1 (82.9) 206.1 21.0

(% of net sales) 22.1 14.5 15.7 3.0 7.5 8.0

Basic EPS (`) 20.0 14.5 19.2 3.3 11.3 13.7Fully diluted EPS ( ) 20.0 14.5 19.2 3.3 11.3 13.7% chg 28.2 (27.4) 32.1 (82.9) 245.4 21.0


9/12


February 8, 2012 9

Balance sheetY/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ESOURCES OF FUNDSEquity Share Capital 61 61 61 61 54 54Preference Capital - - - - - -

Reserves& Surplus 581 770 960 985 1,000 1,130

Shareholders Funds 642 831 1,021 1,046 1,054 1,184Total Loans 708 703 922 1,017 1,117 1,667

Deferred Tax Liability (12) 35 92 107 107 107

Total Liabilities 1,338 1,569 2,035 2,171 2,278 2,959APPLICATION OF FUNDSGross Block 1,474 1,760 1,904 2,319 2,469 2,519

Less: Acc. Depreciation 663 747 841 938 1,036 1,142

Net Block 811 1,013 1,063 1,381 1,432 1,377Capital Work-in-Progress 101 97 182 74 424 1,024

Goodwill - - - - - -

Investments 13 89 481 528 258 258Current Assets 590 632 666 554 574 790

Cash 348 327 220 91 75 173

Loans & Advances 162 216 341 313 329 427

Other 81 89 104 150 170 189

Current liabilities 177 262 357 367 410 489

Net Current Assets 413 370 309 188 164 301Mis. Exp. not written off - - - - - -

Total Assets 1,338 1,569 2,035 2,171 2,278 2,959


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February 8, 2012 10

Cash flow statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EProfit before tax 251 227 331 79 154 198

Depreciation 59 69 80 85 99 106Change in working Capital 9 22 (45) (8) 7 (38)

Less: Other income 33 34 35 21 36 32

Direct taxes paid 27 48 90 20 31 50

Cash flow from operations 258 236 241 115 193 184(Inc)/ Dec in fixed Assets (158) (282) (228) (307) (500) (650)

(Inc)/ Dec in investments 45 (76) (392) (47) 270 -

Other income 33 34 35 21 36 32

Cash flow from investing (80) (324) (585) (334) (194) (618)Issue of equity - - - - (97) -

Inc./(Dec.) in loans (22) (5) 219 96 100 550

Dividend paid (Incl. Tax) 18 29 36 18 18 18

others (63) (101) (54) (12) - -

Cash flow from financing 23 67 238 90 (15) 532Inc./(Dec.) in cash 201 (21) (106) (129) (16) 99

Opening cash balances 147 348 327 220 91 75Closing cash balances 348 327 220 91 75 173


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February 8, 2012 11

Key ratios

Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EValuation ratio (x)P/E (on FDEPS) 3.2 4.5 3.4 19.7 5.7 4.7P/CEPS 2.8 3.2 2.5 5.5 3.2 2.8

P/BV 1.2 1.0 0.8 0.8 0.7 0.6

Dividend yield (%) 2.3 3.6 4.5 2.2 2.5 2.5

EV/Sales 0.9 0.8 0.6 0.9 0.7 0.5

EV/EBITDA 2.9 3.3 2.2 6.7 3.9 2.7

EV / Total Assets 0.8 0.6 0.5 0.6 0.5 0.3

Per share data (`)EPS (Basic) 20.0 14.5 19.2 3.3 11.3 13.7

EPS (fully diluted) 20.0 14.5 19.2 3.3 11.3 13.7

Cash EPS 23.1 20.2 26.2 11.7 20.4 23.5

DPS 1.5 2.3 2.9 1.5 1.6 1.6

Book Value 51.9 64.1 80.9 84.3 95.8 107.8

DuPont analysis (%)EBIT margin 26.4 19.7 23.1 7.5 12.4 14.7

Tax retention ratio 89.3 78.8 72.9 75.0 80.0 75.0

Asset turnover (x) 1.2 1.1 1.2 0.9 0.9 0.8

ROIC (Post-tax) 27.9 17.9 20.2 5.1 9.3 9.2

Cost of debt (Post Tax) 6.7 5.5 4.9 4.6 6.4 5.8

Leverage (x) 1.4 1.0 0.9 0.9 1.0 1.2

Operating ROE 56.8 29.6 33.6 5.6 12.2 13.4

Returns (%)ROCE (Pre-tax) 24.0 16.6 19.1 4.7 9.1 10.5

Angel ROIC (Pre-tax) 34.5 25.0 31.2 7.5 13.5 18.1

ROE 46.5 24.1 25.3 3.9 11.7 13.3

Turnover ratios (x) Asset turnover (Gross Block) 0.8 0.8 0.8 0.6 0.7 0.7

Inventory / Sales (days) 19 19 17 27 28 27

Receivables (days) 6 6 6 8 7 8

Payables (days) 71 88 106 116 107 110

WC cycle (ex-cash) (days) 23 16 16 26 21 21

Solvency ratios (x)Net debt to equity 0.5 0.3 0.2 0.4 0.7 1.0

Net debt to EBITDA 1.0 0.9 0.5 2.2 2.6 3.3

Interest coverage (EBIT/ Int.) 5.4 4.9 6.3 1.6 2.4 2.5


12/12


February 8 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement JK Lakshmi Cement

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

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