1QFY2014 Result Update | Cement

August 7, 2013

JK Lakshmi Cement
Performance Highlights
Quarterly results (Standalone)
Y/E March (` cr) Net revenue Operating profit OPM (%) Net profit 1QFY2014 457 70 15.4 16 4QFY2013 536 95 17.7 49 % chg qoq (14.7) (26.1) (237)bp (68.1) 1QFY2013 534 122 22.9 51 % chg yoy (14.4) (42.6) (754)bp (69.0)

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 631 787 1.0 172/49 22,701 5 18,733 5,542 JKLC.BO JKLC@IN

`54 `79
12 Months

Source: Company, Angel Research

JK Lakshmi Cement (JKLC) posted a 69% yoy fall in its net profit for 1QFY2014, impacted by steep decline in sale volumes and fall in realization. Profitability was also impacted due to a 7% yoy increase in operating cost/tonne. Thus the EBITDA/tonne was down by 34.6% yoy to `576. OPM at 15.4%, down 754bp yoy: For 1QFY2014 JK Lakshmi Cement posted a 14.4% yoy decline in top-line to `457cr, which was below our estimates. Volumes fell by a steep 12.2% yoy as the companys key markets in North India and Gujarat witnessed a 5% yoy de-growth in demand. The Management indicated that of all the markets the company operates in, only Rajasthan posted a demand growth of ~3-4% yoy. Poor demand resulted in a weak pricing scenario resulting in a 2.5% yoy de-growth in realization. The OPM for the quarter fell steeply by 754bp yoy on account of lower realization and increase in costs. The companys operating costs per tonne rose by 7% yoy, impacted largely by higher freight costs and other expenses. Freight costs/tonne rose by 12.4% yoy on account of increase in both the railway freight fare and road transportation costs due to increase in diesel prices. Despite the fall in pet coke prices, power and fuel costs rose by 1.1% due to higher clinker production. The bottom-line fell by 69% yoy on account of poor operational performance. Outlook and valuation: Going ahead, we expect JKLC to post a 6% CAGR in its bottom-line over FY2013-15. At the current market price, the stock is trading at an EV/tonne of US$40 (on FY2015E capacity). We maintain our Buy rating on the stock with a target price of `79 considering the attractive valuations.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 46.0 11.8 10.1 32.1

Abs. (%) Sensex JKLC

3m (4.8) (47.4)

1yr 8.9

3yr 3.2

(43.3) (10.1)

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) FY2012
1,718 30.3 148 269.0 12.1 19.1 4.4 0.6 13.3 8.7 0.6 32 3.1

FY2013
2,055 19.6 192 29.7 16.3 20.9 3.3 0.5 15.8 10.9 0.5 25 2.3

FY2014E
2,235 8.8 177 (8.1) 15.0 19.4 3.6 0.4 13.2 9.1 0.4 22 2.1

FY2015E
2,684 20.1 216 22.5 18.4 0.0 2.9 0.4 14.3 10.0 0.9 40 4.2

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

Source: Company, Angel Research; Note: CMP as of August 6, 2013.

Please refer to important disclosures at the end of this report

JK Lakshmi Cement | 1QFY2014 Result Update

Exhibit 1: Quarterly Performance (Standalone)

Y/E March (` cr) Net sales 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 (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) Provision for taxation (% of PBT) Adjusted PAT PATM EPS (`)
Source: Company, Angel Research

1QFY2014 457 101 22.2 103 22.6 30 6.6 102 22.4 49 10.8 387 70 15.4 20 36 3 18 18 2 11.1 16 3.5 1.3

4QFY2013 536 156 29.1 88 16.5 26 4.9 118 22.1 52 9.7 441 95 17.7 18 49 23 51 51 1 2.7 49 9.2 4.2

% Chg (14.7) (35.0) 17.0 14.1 (13.3) (4.4) (12.3) (26.1) (237)bp 9.6 (28.2) (87) (65.1) (65.1)

1QFY2013 534 113 21.2 116 21.8 28 5.2 104 19.4 51 9.5 412 122 22.9 21 33 4.8 74 74 23 30.9

% Chg (14.4) (10.4) (11.2) 8.0 (1.3) (2.0) (6.1) (42.6) (754)bp (2.8) 8.1 (37.5) (75.9) (75.9)

FY2013 2,055 486 23.7 406 19.8 113 5.5 422 20.5 199 9.7 1,626.0 429 20.9 84 149 55 252 16 236 59.6 25.3

FY2012 1,718 368 21.4 414 24.1 98 5.7 331 19.3 172 10.0 1,383 335 19.5 87 130 63 181 39 142 34 23.9 148 8.6 12.1

% Chg 19.6 32.3 (1.8) 15.1 27.2 15.9 17.6 28.0 136bp (4.4) 14.8 (12.5) 38.9 65.7 75 30.5

(68.1)

51 9.5 4.2

(69.0)

192 9.4 16.3

Exhibit 2: Financial performance

(` cr) 600 500 400 300 200 100 0 4QFY12 1QFY13 2QFY13 Net Operating Income 3QFY13 Net Profit 4QFY13 1QFY14 OPM (RHS) 70 50 51 41 49 16 5 527 533 491 494 536 457 20 15 10 (%) 25

Source: Company, Angel Research

August 7, 2013

JK Lakshmi Cement | 1QFY2014 Result Update

Exhibit 3: 1QFY2014 Actual vs Angel estimates

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

Actual 457 70 15.4 16

Estimates 502 112 22.3 50

Variation (%) (9.1) (37.3) (693)bp (68.7)

Performance highlights
Top-line down 14.4% yoy
JKLC posted a 14.4% yoy decline in top-line to `457cr, which was below our estimates. Volumes fell by a steep 12.2% yoy as the companys key markets in North India and Gujarat witnessed a 5% yoy de-growth in demand. The Management indicated that of all the markets the company operates in, only Rajasthan posted a demand growth of ~3-4% yoy. Poor demand resulted in a weak pricing scenario resulting in a 2.5% yoy de-growth in realization.

EBITDA per tonne down 35% yoy

The OPM for the quarter stood at 15.4% down 754bp on a yoy basis. The OPM declined on account of surge in raw material and freight costs. Freight costs rose on account of a substantial increase in railway freight fares and road freight charges due to increase in diesel costs. Despite the fall in pet coke prices power and fuel costs rose by 1.1% due to higher clinker production.

PAT down by 69% yoy

The companys overall operating costs/tonne too went up by 7% on a yoy basis. While raw material costs/tonne went up by 25.6% on a yoy basis, freight costs/tonne rose by 12.4% yoy. EBITDA/tonne stood at `576, down 34.6% on a yoy basis.

Exhibit 4: Per tonne analysis

Particulars (`/tonne) Net Realization/tonne Raw-Material* Cost/tonne Power and Fuel cost/tonne Freight Cost/tonne Other Cost/tonne Operating costs/tonne Operating Profit/tonne 1QFY14 3,745 1,030 847 840 406 3,170 576 4QFY13 3,747 917 618 827 362 3,082 665 1QFY13 yoy chg (%) qoq chg (%) 3,842 820 838 747 363 2,962 880 (2.5) 25.6 1.1 12.4 11.7 7.0 (34.6) (0.0) 12.3 37.1 1.6 12.1 2.8 (13.4)

Source: Company, Angel Research; Note Incl. Raw materials and purchase of stock in trade

August 7, 2013

JK Lakshmi Cement | 1QFY2014 Result Update

Exhibit 5: Volume performance

1.45 1.4 1.35 (mn tonnes) 1.3 1.26 1.25 1.2 1.15 1.1 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 1.21 1.22 1.42 1.39 1.43

Source: Company, Angel Research

Update on capacity addition plans

JKLC is embarking on a huge expansion plan which would double its overall capacity from the current 5.3mtpa. The companys 2.7mtpa greenfield expansion is expected to be fully commissioned by March 2015. The 1.5mtpa
clinker capacity at Durg along with a 1.7mtpa grinding unit is expected to be commissioned by December 2014. The 1mtpa grinding unit in Odisha is expected to be operational by March 2015. The company indicated that the cost of Greenfield expansion has escalated to `1,650cr, from the earlier estimated `1,500cr due to the arson in the Durg plant in April. JKLC is refurbishing the defunct plant of Udaipur Cement Works. The refurbished cement plant, with a capacity of 1.4mtpa, is expected to be operational by March 2015. The company is also setting up two more split grinding units at Jhajjar and Surat. While the Jhajjar unit is expected to be operational by March 2014, the Surat unit is expected to get commissioned by March 2015. The company is also expanding its clinkering capacity at Sirohi by 0.33mtpa. The Sirohi expansion is expected to be completed by March 2014. These expansions, when complete, would take the companys cement capacity beyond 10mtpa.

August 7, 2013

JK Lakshmi Cement | 1QFY2014 Result Update

Investment rationale
Presence in high growth region: JKLC has 60% and 40% exposure to the northern and western regions of the country, while it has no presence in the south. High captive power usage to result in healthy 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.

Outlook and valuation

Going ahead, we expect JKLC to post a 6% CAGR in its bottom-line over FY201315. At the current market price, the stock is trading at an EV/tonne of US$40 (on FY2015E capacity). We maintain our Buy rating on the stock with a target price of `79 considering the attractive valuations.

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Buy Neutral Neutral Buy Neutral Neutral Neutral CMP (`) Tgt. Price (`) Upside (%) FY2015E P/BV (x) FY2015E P/E (x) FY2013-15E EPS CAGR FY2015E RoE (%) EV/tonne^ US $

1,164 179 46 54 157 4,061 1,670

1,361 79 -

17.0 47.4 -

2.5 2.6 0.4 0.4 1.2 2.5 2.3

14.3 16.0 4.2 2.9 7.0 10.8 14.7

4.5 4.4 35.1 6.1 14.4 16.4 8.2

18.2 17.2 9.0 14.3 17.8 25.6 16.6

100 126 65 23 62 128 165

Source: Company, Angel Research; Note: *Y/E December; #Y/E June ^ Computed on TTM basis

Exhibit 7: EV/tonne band

25,000 20,000 EV (` mn) 15,000 10,000 5,000 0 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 EV/tonne $30 $45 $60 $75

Source: BSE, Company, Angel Research

August 7, 2013

JK Lakshmi Cement | 1QFY2014 Result Update

Company Background
JK Lakshmi Cement (JKLC) is a mid-sized cement company with a current total capacity of 5.3mtpa spread across Rajasthan (4.2mtpa), Gujarat (0.5mtpa) and Haryana (0.55mtpa). The company also has plans to set up a 2.7mtpa greenfield plant at Durg in Chhattisgarh by FY2015. JKLC is refurbishing the defunct plant of Udaipur Cement Works. The refurbished cement plant, with a capacity of 1.4mtpa, is expected to be operational by FY2015.

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 FY10
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

FY11
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)

FY12
1,718 30.3 1,390 368 414 98 511 328 79.1 19.1 130 198 101.1 11.5 80 63 44.4 182 204.5 39 143 34 23.8 109 148 269.0 8.6 12.1 12.1 269.0

FY13
2,055 19.6 1,626 486 406 113 620 429 30.7 20.9 149 280 41.1 13.6 84 55 23.6 252 38.3 16 235 60 25.3 176 192 29.7 9.3 16.3 16.3 34.9

FY14E
2,235 8.8 1,802 540 453 125 684 433 1.1 19.4 163 270 (3.4) 12.1 100 70 29.0 240 (4.8) 240 63 26.3 177 177 (8.1) 7.9 15.0 15.0 (8.1)

FY15E
2,684 20.1 2,109 617 527 137 828 574 32.6 21.4 235 340 25.6 12.7 116 70 23.7 293 22.5 293 77 26.3 216 216 22.5 8.1 18.4 18.4 22.5

August 7, 2013

JK Lakshmi Cement | 1QFY2014 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 Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
666 220 341 104 357 309 2,035 1,904 841 1,063 182 481 2,319 938 1,381 41 528 191 297 89 61 148 256 42 2,182 2,450 1,121 1,329 294 454 369 339 89 92 158 383 (44) 2,403 2,678 1,244 1,435 688 410 369 242 13 64 165 393 (151) 2,751 2,928 1,406 1,522 938 410 369 387 81 132 174 447 (60) 3,179 4,828 1,641 3,187 (262) 410 369 440 43 203 195 517 (77) 3,628 2,035 61 960 1,021 922 92 61 985 1,046 997 107 28 3 2,182 61 1,114 1,175 1,070 123 31 4 2,403 59 1,201 1,260 1,343 113 31 4 2,751 59 1,360 1,419 1,613 113 31 4 3,179 59 1,558 1,617 1,863 113 31 4 3,628

FY10

FY11

FY12

FY13

FY14E

FY15E

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JK Lakshmi Cement | 1QFY2014 Result Update

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
219 36 (54) 238 (106) 327 220 57 (132) 220 89 55 0 89 89 75 18 73 18

FY10
331 80 (45) 35 90 241 (228) (392) 35 (585)

FY11
79 85 (12) 21 20 111 (274) (47) 21 (300)

FY12
143 130 17 63 34 193 (385) 74 63 (247)

FY13
235 149 31 55 60 301 (622) 44 55 (523) (97) 273 18 12 146 (76) 89 13

FY14E
240 163 (23) 70 63 247 (500) 70 (430) 270 18 252 69 13 81

FY15E
293 235 (22) 70 77 360 (700) 70 (630) 250 18 232 (39) 81 43

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JK Lakshmi Cement | 1QFY2014 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.)
0.2 0.5 6.3 0.4 2.1 1.6 0.4 1.6 2.5 0.7 2.1 3.3 0.8 2.6 2.7 0.9 2.5 2.9 0.8 17 6 106 16 0.6 27 8 98 6 0.7 25 7 84 (19) 0.8 21 8 87 (26) 0.8 19 9 85 (25) 0.7 17 8 83 (18) 19.1 31.2 25.3 4.7 7.4 3.9 8.7 12.8 13.3 10.9 17.5 15.8 9.1 16.0 13.2 10.0 13.1 14.3 23.1 72.9 1.2 20.2 4.9 0.9 33.6 7.5 75.0 0.9 5.1 4.7 0.9 5.5 11.5 76.2 1.0 8.8 5.9 0.9 11.6 13.6 74.7 1.0 10.0 5.2 1.0 14.7 12.1 73.7 0.9 7.9 5.0 1.1 11.2 12.7 73.7 0.9 8.5 4.9 1.1 12.7 19.2 19.2 26.2 2.9 80.9 3.3 3.3 11.7 1.5 84.3 12.1 12.1 19.5 1.5 94.8 16.3 16.3 27.6 1.5 105.8 15.0 15.0 28.8 1.5 119.2 18.4 18.4 38.3 1.5 136.1 2.8 2.0 0.7 5.5 0.5 1.9 0.4 16.3 4.6 0.6 2.7 0.8 6.0 0.5 4.4 2.7 0.6 2.7 0.6 3.1 0.4 3.3 1.9 0.5 2.8 0.5 2.3 0.4 3.6 1.9 0.4 2.8 0.4 2.1 0.3 2.9 1.4 0.4 2.8 0.9 4.2 0.7

FY10

FY11

FY12

F13

FY14E

FY15E

August 7, 2013

JK Lakshmi Cement | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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%)

August 7, 2013

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