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4QFY2012 Result Update | Cement

May 22, 2012

JK Lakshmi Cement
Performance Highlights
Y/E March (` cr) Net revenue Operating profit OPM (%) Adj. Net profit 4QFY2012
527 113 21.5 73

BUY
CMP Target Price
% chg qoq
19.7 20.5 14bp 48.9

`63 `79
12 Months

3QFY2012
440 94 21.4 49

4QFY2011
417 78 18.6 32

% chg yoy
26.3 46.0 291bp 129.5)

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 770 1.1 70/36 52,632 5 16,026 4,861 JKLC.BO JKLC@IN

Source: Company, Angel Research

JK Lakshmi Cement (JKLC) reported a strong performance for 4QFY2012, with the companys adjusted net profit coming in at `73cr in 4QFY2012 as against `32cr in 4QFY2011. Bottom-line growth was driven by strong 12.8% yoy growth in realization, coupled with a similar 12.7% yoy improvement in volumes. During 4QFY2012, the company changed its method of charging depreciation on captive power plants from straight line to WDV with retrospective effect, which resulted in additional depreciation of `63cr, of which `39cr pertaining to previous years was charged as exceptional expenses. We maintain our Buy rating on the stock. OPM at 21.5%, up 291bp yoy: During 4QFY2012, JKLC registered top-line growth of 26.3% yoy to `527cr on account of higher volumes and better realization. The companys volumes (including clinker) for the quarter stood at 1.42mn tonnes, up 12.7% yoy. Realization growth of 12.8% yoy was aided by strong demand in the companys prime markets. Despite the substantial increase in raw-material costs, OPM was boosted by a significant 14.5% yoy decline in per tonne power and fuel (P&F) cost. P&F cost declined due to lower pet coke prices, higher use of bio-mass and better energy efficiency. Outlook and valuation: Going forward, we expect JKLC to post a healthy 14.5% CAGR in its top line over FY2012-14E, aided by an 11.7% 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$43 on FY2014E capacity), even after considering its presence in unfavorable locations. Hence, we maintain our Buy recommendation on the stock with a target price of `79.

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 (12.4) (1.1)

1yr (10.9) 44.5

3yr 15.4 37.2

Key financials (Standalone)


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

FY2011
1,319 (11.5) 59 (75.5) 4.8 13.9 19.2 0.7 3.9 4.7 0.9 43 6.6

FY2012E
1,711 29.7 139 134.6 9.4 16.5 7.1 0.7 9.8 6.7 0.6 32 3.9

FY2013E
1,938 13.2 159 14.5 13.0 19.1 4.3 0.6 13.4 10.4 0.5 26 2.5

FY2014E
2,246 15.9 175 10.3 14.3 20.1 3.9 0.5 13.6 10.3 0.9 43 4.3

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

Please refer to important disclosures at the end of this report

JK Lakshmi Cement| 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance


Y/E March (` cr) Total 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 Extr. (Income)/Expense PBT after Extr. Provision for tax (%) of PBT Reported PAT PATM (%)
Source: Company, Angel Research

4QFY2012 527 136 25.8 100 19.0 30 5.7 93 17.6 54 10.3 413 113 21.5 14 54 33 79 39 40 10 12.4 31 13.9

3QFY2012 % Chg qoq 440 66 15.1 108 24.6 24 5.3 83 18.8 65 14.8 346 94 21.4 22 26 15 61 61 12 19.5 49.2 11.2 (38.0) (34.0) 19.5 20.5 14bp (39.0) 110.6 126 29.8 (16.4) 12.3 27.9 (7.8) 19.7 105.0

4QFY2011 % Chg yoy 417 76 18.3 103 24.8 24 5.9 76 18.3 59 14.1 339 78 18.6 15 23 10.5 50 50 18 32.0 7.7 (4.4) (19.5) 21.7 46.0 291bp (9.8) 133.4 217.0 58.3 (7.8) 21.8 23.2 (3.5) 26.3 78.3

Exhibit 2: Financial performance


(` cr) 600 500 400 300 200 100 0 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Net Operating Income Source: Company, Angel Research Net Profit OPM (RHS) 6 5 32 23 6 49 73 266 315 417 397 440 354 527 (%) 25.0 23.0 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Exhibit 3: 4QFY2012 Actual vs. Angel estimates


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

Actual 527 113 21.5 73

Estimates 439 85 19.4 43

Variation (%) 20.1 33.3 213bp 69.1

Performance highlights
Top line up 26.3% yoy, driven by higher realization and dispatches
During 4QFY2012, JKLC registered 26.3% yoy growth in its top line to `527cr on account of a 12.8% yoy improvement in realization to `3,717/tonne and a 12.7% yoy increase in dispatches to 1.42mn tonnes. On the operating front, the companys OPM improved by 291bp yoy to 21.5% due to strong realization growth and significant savings in power and fuel cost.

Per tonne analysis


In 4QFY2012, JKLCs power and fuel costs per tonne fell by 14.5% yoy to `705/tonne on account of higher use of cheaper biomass as fuel, use of power from waste heat recovery plants, reduction in pet coke prices and improved energy efficiency. Freight cost per tonne grew by 7.9% yoy to `656 due to higher costs of petroleum products and increased railway freight charges. Operating profit per tonne stood at `801 during the quarter, up 29.4% 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

4QFY12 3QFY12 4QFY11 3,717 961 705 656 384 801 3,588 543 886 677 531 770 3,298 608 824 608 469 619

chg (%) yoy 12.7 58.0 (14.5) 7.9 (18.2) 29.4

chg (%) qoq 3.6 77.1 (20.4) (3.0) (27.8) 4.0

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Conference call highlights


JKLC has a capex plan of `1,500cr-1,600cr (including `500cr-600cr already spent) to be spent over the next 18 months, which would be incurred towards setting a 2.7mtpa greenfield plant at Durg in Chhattisgarh with split grinding units in Orissa and Jharkhand and kiln capacity augmentation in its Rajasthan plant from 3.96mn tonnes to 4.29mn tonnes. The planned cost for Durg plant is `1,250cr. The company expects Durg plant to come on stream by October 2013 and the companys total capacity then would be raised to 8mtpa. Further, the companys split grinding plant at Jhajjar, Haryana, commenced operations in April 2012. The company further indicated that it has placed equipment orders for the Durg plant. The company is also planning to revive JK Cement Udaipur (a group company currently under BIFR, having 1.4mtpa cement plant) at an estimated total cost of `500cr and expects the revival to be completed by April 2014. JKLC plans to invest `150cr into JK Cement Udaipur and plans to have a controlling stake in the latter. However, the ownership structure is yet to be finalized. JKLC, which had earlier 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, is still in the process of completing the same.

Investment rationale
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. Thus, effectively the company has access to 87MW of cheaper power, which is more than sufficient for its current capacity. Further, the company has increased the use of biomass in its overall usage, which is also expected to improve its profitability going ahead. 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.

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Outlook and valuation


Going forward, we expect JKLC to post a healthy 14.5% CAGR in its top line over FY2012-14E, aided by an 11.7% 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$43 on FY2014E capacity), even after considering its presence in unfavorable locations. Hence, we maintain our Buy recommendation on the stock with a target price of `79.

Exhibit 5: Change in estimates


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

FY2013E Earlier
1,880 1,522 358 106 32 176 44 132

FY2014E Var. (%)


3.1 3.0 3.3 (7.1) 1.0 19.9 18.3 20.4

Revised
1,938 1,568 370 98 32 211 52 159

Earlier
2,201 1,704 497 130 35 254 76 178

Revised
2,246 1,795 451 145 34 229 54 175

Var. (%)
2.0 5.3 (9.2) 11.5 (3.0) (9.8) (28.8) (1.6)

Exhibit 6: Recommendation summary


Company ACC* Ambuja Cements* India Cements JKLC Madras Cements Shree Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral Neutral CMP (`) Tgt. Price (`) Upside (%) FY2014E P/BV (x) FY2014E P/E (x) FY2012-14E EPS CAGR (%) FY2014E RoCE (%) FY2014E RoE (%)

1,130 140 72 63 138 2,569 1,380

79 -

25 -

2.5 2.4 0.6 0.5 1.2 2.7 2.2

13.9 13.3 6.3 3.9 7.6 11.6 13.2

7.3 13.7 8.6 34.8 4.7 66.4 8.3

23.3 22.2 9.4 10.3 14.4 21.1 17.6

19.0 19.4 9.5 13.6 16.9 25.8 17.9

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

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Exhibit 7: One-year forward EV/Tonne band


25,000 20,000 EV (` mn) 15,000 10,000 5,000 0 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

EV/tonne Source: BSE, Company, Angel Research

$30

$50

$70

$90

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Profit and loss statement (Standalone)


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 FY2009 FY2010 FY2011 FY2012
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) 1,711 29.7 1,429 368 414 98 550 282 53.8 16.5 130 152 54.1 8.9 80 70 40.8 143 138.7 (30) 173 34 19.7 139 109 171.1 6.4 8.9 8.9 171.0

FY2013E
1,938 13.2 1,568 380 460 106 621 370 31.3 19.1 98 272 78.7 14.0 93 32 15.3 211 47.7 211 52 24.7 159 159 46.0 8.2 14.6 14.6 64.8

FY2014E
2,246 15.9 1,795 424 515 117 739 451 22.0 20.1 145 306 12.6 13.6 110 34 14.7 229 8.8 229 54 23.7 175 175 10.3 7.8 16.1 16.1 10.3

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Balance sheet (Standalone)


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
1,760 747 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 1,067 1,401 424 408 595 68 345 182 437 158 2,392 2,519 1,166 1,353 1,024 308 645 37 409 198 495 150 2,835 3,819 1,311 2,508 74 308 790 120 451 219 558 232 3,123 61 770 831 703 35 1,569 61 960 1,021 922 92 2,035 61 985 1,046 1,017 107 2,171 61 1,106 1,167 1,117 107 2,392 54 1,156 1,211 1,517 107 2,835 54 1,314 1,368 1,647 107 3,123

FY2009 FY2010 FY2011 FY012E FY2013E

FY2014E

Cash flow statement (Standalone)


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
(5) 29 (101) 67 (21) 348 327 219 36 (54) 238 (106) 327 220 96 18 (12) 90 (129) 220 91 82 (24) 91 68 285 (31) 68 37 112 83 37 120 100 18

FY2009 FY2010 FY2011 FY012E FY2013E FY2014E


227 69 22 34 48 236 (282) (76) 34 (324) 331 80 (45) 35 90 241 (228) (392) 35 (585) 79 85 (8) 21 20 115 (307) (47) 21 (334) 173 130 6 70 34 204 (500) 120 70 (310) 211 98 (22) 32 52 202 (650) 100 32 (518) (97) 400 18 130 18 229 145 1 34 54 287 (350) 34 (316)

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Key ratios (Standalone)


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.)
0.3 0.9 4.9 0.2 0.5 6.3 0.4 2.2 1.6 0.6 2.3 1.9 1.0 3.2 2.9 0.9 2.7 2.8 0.8 19 6 88 16 0.8 17 6 106 16 0.6 27 8 116 26 0.7 28 7 103 20 0.8 28 8 108 19 0.7 25 8 107 18 16.6 25.0 24.1 19.1 31.2 25.3 4.7 7.5 3.9 6.7 10.2 9.8 10.4 18.4 13.4 10.3 15.0 13.6 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 8.9 80.3 1.0 7.0 6.0 1.0 8.0 14.0 75.3 0.9 9.3 5.3 1.1 13.7 13.6 76.3 0.9 9.0 5.3 1.2 13.5 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 8.9 8.9 21.9 1.5 94.1 14.6 14.6 23.7 1.6 110.2 16.1 16.1 29.5 1.6 124.7 4.3 3.1 1.0 3.7 0.8 3.2 0.6 3.3 2.4 0.8 4.6 0.6 2.1 0.4 19.2 5.4 0.7 2.3 0.9 6.6 0.6 7.1 2.9 0.7 2.3 0.6 3.9 0.5 4.3 2.7 0.6 2.6 0.5 2.5 0.3 3.9 2.1 0.5 2.6 0.9 4.3 0.6

FY2009 FY2010 FY2011 FY012E FY2013E FY2014E

May 22, 2012

JK Lakshmi Cement| 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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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%)

May 22, 2012

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