1. 4QFY2010 Result Update I Cement
May 19, 2010
JK Lakshmi Cement BUY
CMP Rs65
Performance Highlights Target Price Rs86
JK Lakshmi Cement (JKLC) reported a healthy 21.1% yoy growth in its net Investment Period 12 Months
sales to Rs441cr, primarily on account of an impressive growth in the sales
volume during the quarter. The company’s sales volume during the quarter Stock Info
rose by 21% yoy to 1.41mn tonnes, aided by a capacity increase and robust
Sector Cement
demand. However, on the operating front, the company’s margins declined
by 756bp yoy, on account of a surge in raw material costs (up 48.3% yoy) Market Cap (Rs cr) 793
and other expenses (up 72.8% yoy). The company reported a 32.6% decline
in its Bottom-line to Rs70cr, on account of higher depreciation and interest Beta 0.8
costs. The stock trades at a P/E of 4.1x, at an EV/EBITDA of 3.9x and at an 52 WK High / Low 85/40
EV/tonne of US $65/tonne, according to its FY2012E estimates. We maintain
a Buy on the stock. Avg. Daily Volume 116722
Face Value (Rs) 5
Higher raw material and interest costs drag Net Profit down by 32.6% yoy:
JKLC’s operating profit declined by 8.7% yoy to Rs102.3cr, despite a 21.1% BSE Sensex 16,408
growth in net sales to Rs441.3cr. The operating profit was marred by an Nifty 4,920
increase in raw material, freight and other expenses, although the realisations
remained flat yoy. The company had also purchased high cost clinker from Reuters Code JKLC.BO
external sources during the quarter. The interest and depreciation costs rose
Bloomberg Code JKLC@IN
substantially during the quarter on a yoy basis, and stood at Rs10.7cr (net
interest income of Rs2.1cr) and Rs21.3cr (Rs14.1cr), respectively. Shareholding Pattern (%)
Promoters 44.2
Outlook and Valuation
MF/Banks/Indian FIs 23.0
The stock trades at a P/E of 4.1x, at an EV/EBITDA of 3.9x and at an
FII/NRIs/OCBs 9.9
EV/tonne of US $65/tonne, according to its FY2012E estimates. On the
valuation front, we have valued JK Lakshmi Cements at an average of a Indian Public 22.9
Target EV/EBITDA of 4x and an EV/tonne of US $60/tonne, which is at a
discount to the replacement cost, to arrive at a fair value of Rs86. We Abs. (%) 3m 1yr 3yr
maintain a Buy recommendation on the stock. Sensex 1.3 14.7 14.7
JKLC (11.2) 54.2 5.1
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,225 1,491 1,376 1,570
% chg 10.6 21.7 (7.7) 14.1
Net Profit 179 241 154 192
% chg (20.2) 35.0 (36.3) 25.1
OPM (%) 25.4 28.5 24.4 26.1
EPS (Rs) 14.6 19.7 12.5 15.7
P/E (x) 4.4 3.3 5.2 4.1
P/BV (x) 1.0 0.8 0.7 0.6 Rupesh Sankhe
RoE (%) 24.2 25.7 13.9 15.4 Tel: 022 – 4040 3800 Ext: 319
RoCE (%) 16.6 21.2 13.0 13.7 E-mail: rupeshd.sankhe@angeltrade.com
EV/Sales (x) 1.0 0.8 1.0 1.0
V Srinivasan
EV/EBITDA (x) 3.7 2.9 4.1 3.9
Tel: 022 – 4040 3800 Ext: 330
EV/Tonnes (US $) 55 57 64 65
E-mail: v.srinivasan@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. JK Lakshmi Cement I 4QFY2010 Result Update
Exhibit 1: 4QFY10 Performance
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Net Sales 441.3 364.6 21.1 1,491 1,225 21.6
Net Raw Material Costs 92.9 62.6 48.3 233.6 182.4 28.1
(% of Sales) 21.1 17.2 15.7 14.9
Power & Fuel 80.1 72.8 10.0 290.4 306.3 (5.2)
(% of Sales) 18.2 20.0 19.5 25.0
Staff Costs 27.1 20.0 35.8 85.4 69.2 23.5
(% of Sales) 6.1 5.5 5.7 5.6
Freight & Forwarding 68.5 56.4 21.6 252.5 202.2 24.9
(% of Sales) 15.5 15.5 16.9 16.5
Other Expenses 70.3 40.7 72.8 204.0 153.9 32.5
(% of Sales) 15.9 11.2 13.7 12.6
Total Expenditure 339.0 252.5 34.3 1,066 914.0 16.6
Operating Profit 102.3 112.1 (8.7) 425.0 311.8 36.3
OPM 23.2 30.8 28.5 25.4
Interest 10.7 (2.1) 23.0 20.9 10.1
Depreciation 21.3 14.1 50.6 80.0 69.1 15.8
Other Income 1.5 4.4 (65) 8.9 4.9 82.2
PBT (incl. Extr. Items) 71.9 104.4 (31.1) 330.9 226.7 46.0
Provision for Taxation 1.8 0.3 89.7 48.1 87
(% of PBT) 2.5 0.3 27.1 21.2
Reported PAT 70.1 104.1 (32.6) 241.1 178.6 35.0
PATM 15.9 28.6 16.2 14.6
EPS (Rs) 5.7 8.5 19.7 14.6
Source: Company, Angel Research
Operational Highlights
The company’s per tonne cement realisation was flat yoy during the quarter,
although it was up by 3% qoq. The company’s average realisation during the
quarter stood at Rs3,130/tonne. The company’s key markets in Western and
Northern India experienced robust demand during the quarter, which resulted in the
prices remaining at healthy levels. The raw material costs per tonne were up by
22.5% yoy and stood at Rs659. The raw material costs were impacted by stock
adjustment of Rs22cr carried out during the quarter. Operating profit per tonne
stood at Rs726 during the quarter, down by 24.7% yoy and by 5.2% qoq.
Exhibit 2: Per tonne analysis (Rs)
yoy chg qoq
4QFY10 3QFY10 4QFY09
(%) chg (%)
Realisation/tonne 3,130 3,038 3,132 (0.1) 3.0
Raw Material Cost/tonne 658.9 416.2 537.8 22.5 58.3
Power & Fuel Cost /tonne 568.1 664.7 625.4 (9.2) (14.5)
Freight & Forwarding
Cost/tonne 485.8 591.6 484.5 0.3 (17.9)
Operating Profit/tonne 725.5 765.3 963.1 (24.7) (5.2)
Depreciation/tonne 151.1 153.1 121.1 24.7 (1.3)
Net Profit/tonne 497.2 390.4 894.3 (44.4) 27.4
Source: Company, Angel Research
May 19, 2010 2
3. JK Lakshmi Cement I 4QFY2010 Result Update
Capacity addition on track
The company is in the process of expanding its cement and power capacities. JKLC,
which currently has a capacity of 5.4mtpa, is setting up a 2.7mtpa green-field
cement plant in Chattisgarh, at a cost of Rs1,200cr. The Chattisgarh plant is
expected to be operational by December 2012, and will take the company’s total
cement capacity to 8mtpa. It is also planning to increase its total captive power
capacity from 36MW to 66MW by FY2012E, which will be sufficient to meet close to
90% of its power requirement on the expanded capacity of 8mtpa. The company
expects to sell 25MW (including the 21MW procured from VS Lignite power) of
surplus power from FY2011E onwards.
Exhibit 3: Installed Capacity
6
5.4 5.4
5 4.8 4.8
4 3.7
3.4
(mtpa)
3
2.4
2
1
0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Source: Company, Angel Research
Outlook and Valuation
In the northern market, the capacity utilisation remained healthy at 86% in April
2010, due to Commonwealth-related spending. All the frontline states in the
southern region, like Andhra Pradesh, Tamil Nadu and Karnataka, had been
witnessing low demand in the recent months. The industry had also witnessed
aggressive inter-regional stock movement, pending the expansions in the other
regions, which exerted pressure on the prices and profitability. Overall, the cement
companies have been reporting strong sales volumes, on the back of new capacities
coming on stream, which has enabled most of the cement manufacturers to increase
their total cement production. Cement capacity addition in India during FY2010
stood at 27mn tonnes, taking the total capacity of the sector to around 252mtpa at
the end of FY2010. Going ahead, we expect the industry to add around 41mn
tonnes of capacity through FY2011-12E.
All-India demand is expected to remain robust, but accelerated capacity additions
and the stabilisation of new capacities would exert pressure on prices.
Exhibit 4: Valuation based on EV/EBITDA multiple and Asset Replacement (FY12E)
Target EV/EBITDA (x) 4 Target EV/tonne (US $) 60
EV (Rs cr) 1,738 EV (Rs cr) 1,457
Market Cap (Rs cr) 1,026 CPP(87 MW) 348
Market Cap (Rs cr) 1,092
No. of shares (cr) 12.2 No. of shares (cr) 12.2
Fair Price (Rs) 84 Fair Price (Rs) 89
Source: Company, Angel Research
May 19, 2010 3
4. JK Lakshmi Cement I 4QFY2010 Result Update
On the valuation front, we have valued JK Lakshmi Cements at an average of a
Target EV/EBITDA of 4x and an EV/tonne of US $60/tonne, to arrive at a fair value
of Rs86, which is at a discount to the replacement cost.
The stock trades at a P/E of 4.1x, at an EV/EBITDA of 3.9x and at an EV/tonne of US
$65/tonne, according to its FY2012E estimates. We maintain a Buy on the stock,
with a Target Price of Rs86.
Exhibit 5: 1-year forward EV/EBITDA band
(Rs cr)
3,000
2,500
2,000
5.5x
1,500
4x
1,000
2.5x
500
1x
0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Source: Company, Angel Research
Exhibit 6: 1-year forward EV/tonne band
3,000
2,500
2,000 $90
EV (Rs cr)
1,500 $70
$50
1,000
$30
500
0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Source: Company, Angel Research
May 19, 2010 4
5. JK Lakshmi Cement I 4QFY2010 Result Update
Profit & Loss Statement (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 844 1,108 1,225 1,491 1,376 1,570
Other operating income
Total operating income 844 1,108 1,225 1,491 1,376 1,570
% chg
Total Expenditure 588 756 914 1,066 1,041 1,161
Net Raw Materials 81 123 170 234 221 246
Other Mfg costs 219 246 306 290 316 354
Personnel 35 56 69 85 82 91
Other 253 331 369 457 422 470
EBITDA 256 351 311 425 335 409
% chg 111.8 37.2 (11.6) 36.7 (21.1) 22.1
(% of Net Sales) 30.3 31.7 25.4 28.5 24.4 26.1
Depreciation& Amortisation 44 59 69 80 95 108
EBIT 212 293 241 345 240 301
% chg 212.1 38.3 (17.5) 42.7 (30.3) 25.2
(% of Net Sales) 25.1 26.4 19.7 23.1 17.4 19.1
Interest & other Charges 36 28 21 23 35 43
Other Income 3 7 6 9 8 9
(% of PBT) 1.8 2.7 2.7 2.8 3.9 3.5
Share in profit of Associates
Recurring PBT 179 272 227 331 213 267
% chg 217.9 51.9 (16.5) 46.0 (35.5) 25.1
Extraordinary Expense/(Inc.) - 21.0 - - - -
PBT (reported) 179 251 227 331 213 267
Tax 1 27 48 90 60 75
(% of PBT) 0.4 10.7 21.2 27.1 28.0 28.0
PAT (reported) 178 224 179 241 154 192
ADJ. PAT 178 245 179 241 154 192
% chg 221.2 37.4 (27.0) 35.0 (36.3) 25.1
(% of Net Sales) 21.1 22.1 14.6 16.2 11.2 12.2
Basic EPS (Rs) 16 18 15 20 13 16
Fully Diluted EPS (Rs) 16 18 15 20 13 16
% chg 180.1 17.2 (20.2) 35.0 (36.3) 25.1
May 19, 2010 5
6. JK Lakshmi Cement I 4QFY2010 Result Update
Balance Sheet (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 57 61 61 61 61 61
Preference Capital
Reserves& Surplus 353 581 770 983 1,108 1,271
Shareholders Funds 410 642 831 1,044 1,169 1,332
Minority Interest
Total Loans 734 708 703 603 803 1,003
Deferred Tax Liability (38) (12) 35 35 35 35
Total Liabilities 1,105 1,338 1,569 1,682 2,006 2,370
APPLICATION OF FUNDS
Gross Block 1,341 1,474 1,760 1,910 2,110 2,410
Less: Acc. Depreciation 595 663 747 827 922 1,031
Net Block 746 811 1,013 1,083 1,188 1,380
Capital Work-in-Progress 77 101 97 297 497 697
Goodwill - - - - - -
Investments 58 13 89 89 89 89
Current Assets 342 590 632 501 531 534
Cash 151 348 327 171 210 201
Loans & Advances 118 162 216 216 216 216
Other 74 81 89 114 105 117
Current liabilities 117 177 262 288 299 329
Net Current Assets 225 413 370 213 232 204
Mis. Exp. not written off - - - - - -
Total Assets 1,105 1,338 1,569 1,682 2,006 2,370
Cash Flow Statement (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 179 251 227 331 213 267
Depreciation 44 59 69 80 95 108
Change in Working Capital 133 95 144 24 55 62
Less: Other income 3 7 6 9 8 9
Direct taxes paid 1 27 48 90 60 75
Cash Flow from Operations 352 371 386 336 295 353
(Inc)/ Decin Fixed Assets (154) (158) (282) (350) (400) (500)
(Inc)/ Dec in Investments (58) 45 (76) - - -
(Inc)/ Dec in loans and advances
Other income 3 7 6 9 8 9
Cash Flow from Investing (208) (106) (352) (341) (392) (491)
Issue of Equity
Inc./(Dec.) in loans 38 (22) (5) (100) 200 200
Dividend Paid (Incl. Tax) 7 18 29 29 29 29
Others 36 28 21 23 35 43
Cash Flow from Financing (5) (68) (55) (152) 136 128
Inc./(Dec.) in Cash 139 197 (21) (156) 40 (9)
Opening Cash balances 12 151 348 327 171 210
Closing Cash balances 151 348 327 171 210 201
May 19, 2010 6
8. JK Lakshmi Cement I 4QFY2010 Result Update
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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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
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
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May 19, 2010 8
