3QFY2012 Result Update | Cement

February 8, 2012

JK Lakshmi Cement
Performance Highlights
Y/E March (` cr) Net revenue Operating profit OPM (%) Net profit
Source: Company, Angel Research

BUY
CMP Target Price
% chg qoq 24.3 128.7 977bp 658.7 3QFY2011 315 25 7.9 5 % chg yoy 39.5 279.0 1,352bp 970.4

`65 `79
12 months

3QFY2012 440 94 21.4 49

2QFY2012 354 41 11.6 6

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Cement 792 1.1 67/36 46,260 5 17,707 5,368 JKLC.BO JKLC@IN

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 in raw-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 registered top-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 Buy rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 44.2 15.7 7.2 32.8

Abs. (%) Sensex JKLC

3m 0.8

1yr (0.4)

3yr 90.4

40.8 42.2 232.9

Key financials
Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne (US$) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 1,491 21.7 241 35.0 19.7 28.5 3.4 0.8 25.3 19.1 0.6 34 2.2

FY2011 1,319 (11.5) 59 (75.5) 4.8 13.9 19.7 0.8 3.9 4.7 0.9 44 6.7

FY2012E 1,629 23.5 123 107.7 10.0 18.5 5.7 0.7 11.7 9.1 0.7 35 3.9

FY2013E 1,868 14.7 149 21.0 0.0 20.4 4.7 0.6 13.3 10.5 0.5 29 2.7

V Srinivasan
022-39357800 Ext. 6831 v.srinivasan@angelbroking.com

Sourabh Taparia
022-39357800 Ext. 6872 sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

JK Lakshmi Cement | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance

Y/E March (` cr) Net operating income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total Expenditure Operating Profit OPM Interest Depreciation Other income PBT (incl. Extr. Items) Provision for taxation (% of PBT) Reported PAT PATM EPS (`)
Source: Company, Angel Research

3QFY2012 440 66 15.1 108 24.6 24 5.3 83 18.8 65 14.8 346 94 21.4 22 26 15 61 12 19.5 49.2 11.2 4.0

2QFY2012 354 67 19.0 97 27.4 22 6.2 76 21.6 50 14.1 313 41 11.6 20 26 12 8 1 17.2 6.5 1.8 0.5

% Chg 24.3 (1.5) 11.4 6.9 8.3 30.0 10.5 128.7 977 9.9 0.0 19 679.8

3QFY2011 315 48 15.3 105 33.3 17 5.4 68 21.4 53 16.8 291 25 7.9 13 21 9 0 (4)

% Chg 39.5 37.9 3.3 38.9 22.3 22.7 19.1 279.0 1,352 75.9 20.4 59

9MFY2012 1,191 186 15.6 314 26.3 68 5.7 238 20.0 170 14.3 977 215 18.0 64 76 28 103 24 23.5

9MFY2011 905 128 14.1 288 31.9 56 6.2 187 20.7 136 15.1 796 109 12.0 36 62 17 29 2 5.2 27 3.0 2.2

% Chg 31.6 45.7 8.8 21.1 27.3 24.9 22.7 97.0 597 79.2 23.3 64.4 257.9 1,509 188.8

658.7

4.6 1.5 0.4

970.4

78 6.6 6.4

Exhibit 2: Financial performance

(` cr) 500 400 300 200 100 0 1QFY11 2QFY11 17 32 4QFY11 23 1QFY12
Net Profit

417 324 266 315

397

440 354

5 3QFY11

6 2QFY12

49 3QFY12

(%) 23.0 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0

Net Operating Income

OPM (RHS)

Source: Company, Angel Research

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Exhibit 3: 3QFY2012 Actual vs. Angel estimates

(` cr) Net Sales Operating Profit OPM (%) Net Profit
Source: Company, Angel Research

Actual 440 94 21.4 49

Estimates 380 48 12.7 9

Variation (%) 15.8 95.2 870bp 447.1

Performance highlights
Top line up 39.5% yoy, driven by higher realization and dispatches
During 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

(`) Realization/tonne Raw-material cost/tonne Power and fuel cost/tonne Freight costs/tonne Other costs/tonne Operating profit/tonne
Source: Company, Angel Research

3QFY12 3,359 543 886 677 531 770

2QFY12 2,920 598 862 678 443 365

3QFY11 2,660 444 968 624 488 229

chg (%) yoy 26.3 22.2 (8.5) 8.4 8.8 236.0

chg (%) qoq 15.0 (9.2) 2.7 (0.2) 19.8 110.8

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Conference call highlights

JKLC has planned a total capex of `1,450cr to be spent over the next three years, 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 North India, 30% in Gujarat, 30% in Rajasthan and balance in Maharashtra. The company is also planning to revive JK Cement Udaipur (a group company currently under BIFR, having ~1.4mtpa cement plant) at and expects the revival to be completed by April 2014. JKLC has announced an equity share buyback up to an amount of `97.5cr at a 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

(%) 30.0 25.0 20.0 15.0 10.0 5.0 0.0 (5.0) (10.0) 9MFY2012 3QFY2012 All India Northern region Eastern region 13.2 5.4 16.1 10.2 4.8 (4.3) Southern region Western region Central region 3.2 15.1 25.0 16.7 11.5 7.6

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

(%) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 8.4 (6.5) (3.9) 13.9 13.3 15.4 14.8 13.4 12.4 16.6 19.7 14.7 20.3 31.3

(5.0) (10.0) (15.0)

9MFY2012

3QFY2012

Source: Company, Angel Research

Source: Company, Angel Research

February 8, 2012

Maharashtra

Rajasthan

Punjab

Uttarakhand

Himachal Pradesh

Haryana

Gujarat

JK Lakshmi Cement | 3QFY2012 Result Update

Investment arguments
Rising captive power usage to improve profitability: JKLC has a power purchase tie-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, of which `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 total capacities 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 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 Buy rating on the stock.

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Exhibit 7: Change in estimates

Parameter (` cr) Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT
Source: Angel Research

FY2012E Earlier 1,483 1,238 245 99 35 96 24 72 Revised 1,629 1,327 301 99 36 154 31 123 Var. (%) 9.8 7.2 22.8 0.0 3.7 59.5 27.8 70.0 Earlier 1,751 1,450 301 104 38 127 32 95

FY2013E Revised 1,868 1,488 380 106 32 198 50 149 Var. (%) 6.7 2.6 26.4 2.0 (15.5) 56.4 56.7 56.3

Exhibit 8: Key assumptions

Earlier estimates FY12E Installed capacity (mtpa) Growth (%) Utilization (%) Raw-material costs/tonne(`) Power cost/tonne(`)
Source: Company, Angel Research

Revised estimates FY12E 5.3 11.6 90 648 982 FY13E 5.3 99 628 972

FY13E 5.3 11.6 92 701 1,026

4.7 91 706 994

Exhibit 9: Recommendation summary

Company ACC* Ambuja Cements* India Cements JKLC Madras Cements Shree Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,383 177 96 65 140 2,425 1,385 Tgt. Price (`) 79 Upside (%) 22.0 FY2013E P/BV (x) 3.3 3.0 0.8 0.6 1.4 3.3 2.7 FY2013E P/E (x) 20.5 19.3 9.8 4.7 8.8 20.1 16.7 FY2011-13E EPS CAGR (%) 6.4 6.9 174.0 104.4 34.0 27.6 27.1 FY2013E RoCE (%) 20.9 20.4 7.4 10.5 13.1 15.8 17.5 FY2013E RoE (%) 16.7 16.5 8.5 13.3 17.0 17.7 17.1

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

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Exhibit 10: One-year forward EV/Tonne band

25,000 20,000 EV/tonne $30 $50 $70 $90

EV(` mn)

15,000 10,000 5,000 0

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Apr-11

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

February 8, 2012

Oct-11

JK Lakshmi Cement | 3QFY2012 Result Update

Profit and loss statement

Y/E March (` cr) Total operating income % chg Total expenditure Net raw material Other mfg. costs Personnel Other EBITDA % chg (% of net sales) Depreciation & amortization EBIT % chg (% of net sales) Interest & other charges Other income (% of PBT) Recurring PBT % chg Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of net sales) Basic EPS (`) Fully diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 1,108 31.3 756 136 246 56 319 351 37.2 31.7 59 293 38.3 26.4 54 33 13.1 272 51.9 21 251 27 10.7 224 245 37.4 22.1 20.0 20.0 28.2 1,225 10.6 914 182 306 69 356 311 (11.6) 25.4 69 241 (17.5) 19.7 50 34 14.9 226 (16.9) (1) 227 48 21.2 179 178 (27.4) 14.5 14.5 14.5 (27.4) 1,491 21.7 1,066 234 290 85 457 425 36.7 28.5 80 345 42.7 23.1 55 35 10.5 324 43.7 (6) 331 90 27.1 241 235 32.1 15.7 19.2 19.2 32.1 1,319 (11.5) 1,136 204 392 81 459 183 (56.9) 13.9 85 99 (71.4) 7.5 60 21 26.8 60 (81.6) (19) 79 20 25.0 59 40 (82.9) 3.0 3.3 3.3 (82.9) FY2012E 1,629 23.5 1,327 277 419 89 543 301 64.4 18.5 99 202 105.3 12.4 85 36 23.6 154 156.8 154 31 20.0 123 123 206.1 7.5 11.3 11.3 245.4 FY2013E 1,868 14.7 1,488 298 465 98 626 380 26.2 20.4 106 274 35.6 14.7 108 32 16.1 198 29.0 198 50 25.0 149 149 21.0 8.0 13.7 13.7 21.0

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,474 663 811 101 13 590 348 162 81 177 413 1,338 1,760 747 1,013 97 89 632 327 216 89 262 370 1,569 1,904 841 1,063 182 481 666 220 341 104 357 309 2,035 2,319 938 1,381 74 528 554 91 313 150 367 188 2,171 2,469 1,036 1,432 424 258 574 75 329 170 410 164 2,278 2,519 1,142 1,377 1,024 258 790 173 427 189 489 301 2,959 61 581 642 708 (12) 1,338 61 770 831 703 35 1,569 61 960 1,021 922 92 2,035 61 985 1,046 1,017 107 2,171 54 1,000 1,054 1,117 107 2,278 54 1,130 1,184 1,667 107 2,959 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

February 8, 2012

JK Lakshmi Cement | 3QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in working Capital Less: Other income Direct taxes paid Cash flow from operations (Inc)/ Dec in fixed Assets (Inc)/ Dec in investments Other income Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. Tax) others Cash flow from financing Inc./(Dec.) in cash Opening cash balances Closing cash balances FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 251 59 9 33 27 258 (158) 45 33 (80) (22) 18 (63) 23 201 147 348 227 69 22 34 48 236 (282) (76) 34 (324) (5) 29 (101) 67 (21) 348 327 331 80 (45) 35 90 241 (228) (392) 35 (585) 219 36 (54) 238 (106) 327 220 79 85 (8) 21 20 115 (307) (47) 21 (334) 96 18 (12) 90 (129) 220 91 154 99 7 36 31 193 (500) 270 36 (194) (97) 100 18 (15) (16) 91 75 198 106 (38) 32 50 184 (650) 32 (618) 550 18 532 99 75 173

February 8, 2012

10

JK Lakshmi Cement | 3QFY2012 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage (EBIT/ Int.) 0.5 1.0 5.4 0.3 0.9 4.9 0.2 0.5 6.3 0.4 2.2 1.6 0.7 2.6 2.4 1.0 3.3 2.5 0.8 19 6 71 23 0.8 19 6 88 16 0.8 17 6 106 16 0.6 27 8 116 26 0.7 28 7 107 21 0.7 27 8 110 21 24.0 34.5 46.5 16.6 25.0 24.1 19.1 31.2 25.3 4.7 7.5 3.9 9.1 13.5 11.7 10.5 18.1 13.3 26.4 89.3 1.2 27.9 6.7 1.4 56.8 19.7 78.8 1.1 17.9 5.5 1.0 29.6 23.1 72.9 1.2 20.2 4.9 0.9 33.6 7.5 75.0 0.9 5.1 4.6 0.9 5.6 12.4 80.0 0.9 9.3 6.4 1.0 12.2 14.7 75.0 0.8 9.2 5.8 1.2 13.4 20.0 20.0 23.1 1.5 51.9 14.5 14.5 20.2 2.3 64.1 19.2 19.2 26.2 2.9 80.9 3.3 3.3 11.7 1.5 84.3 11.3 11.3 20.4 1.6 95.8 13.7 13.7 23.5 1.6 107.8 3.2 2.8 1.2 2.3 0.9 2.9 0.8 4.5 3.2 1.0 3.6 0.8 3.3 0.6 3.4 2.5 0.8 4.5 0.6 2.2 0.5 19.7 5.5 0.8 2.2 0.9 6.7 0.6 5.7 3.2 0.7 2.5 0.7 3.9 0.5 4.7 2.8 0.6 2.5 0.5 2.7 0.3 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

February 8, 2012

11

JK Lakshmi Cement | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. 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 reliable sources 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 this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies 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. 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. While Angel 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. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. 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 the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

JK Lakshmi Cement No No No No

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

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 8, 2012

12