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JK Lakshmi Cement Performance Highlights Quarterly results (Standalone) Y/E March ( ` cr) 1QFY2014 4QFY2013
JK Lakshmi Cement Performance Highlights Quarterly results (Standalone) Y/E March ( ` cr) 1QFY2014 4QFY2013

JK Lakshmi Cement

Performance Highlights

Quarterly results (Standalone)

Y/E March (` cr)

1QFY2014

4QFY2013

% chg qoq

1QFY2013

% chg yoy

Net revenue

457

536

(14.7)

534

(14.4)

Operating profit

70

95

(26.1)

122

(42.6)

OPM (%)

15.4

17.7

(237)bp

22.9

(754)bp

Net profit

16

49

(68.1)

51

(69.0)

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 company’s 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 company’s 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.

1QFY2014 Result Update | Cement

August 7, 2013

BUY

CMP

` 54

Target Price

` 79

Investment Period

12 Months

Stock Info

Sector Market Cap (` cr) Net Debt (` cr)

 

Cement

631

787

Beta 52 Week High / Low Avg. Daily Volume

 

1.0

172/49

22,701

Face Value (` ) BSE Sensex Nifty

 

5

18,733

5,542

Reuters Code
Reuters Code

JKLC.BO

Bloomberg Code

JKLC@IN

Shareholding Pattern (%)

 

Promoters

46.0

MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others

 

11.8

10.1

32.1

Abs. (%)

3m

1yr

3yr

Sensex

(4.8)

8.9

3.2

JKLC

(47.4)

(43.3)

(10.1)

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.

Key financials (Standalone)

Y/E March (` cr)

FY2012

FY2013

FY2014E

FY2015E

Net sales

1,718

2,055

2,235

2,684

%

chg

30.3

19.6

8.8

20.1

Net profit

148

192

177

216

%

chg

269.0

29.7

(8.1)

22.5

FDEPS ( `)

12.1

16.3

15.0

18.4

OPM (%)

19.1

20.9

19.4

0.0

 

P/E (x)

4.4

3.3

3.6

2.9

P/BV (x)

0.6

0.5

0.4

0.4

RoE (%)

13.3

15.8

13.2

14.3

RoCE (%)

8.7

10.9

9.1

10.0

EV/Sales (x)

0.6

0.5

0.4

0.9

EV/Tonne (US$)

32

25

22

40

EV/EBITDA (x)

3.1

2.3

2.1

4.2

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

V Srinivasan

022-39357800

v.srinivasan@angelbroking.com

Exhibit 1: Quarterly Performance (Standalone) J K Lakshmi Cement | 1QFY2014 Result Update

Exhibit 1: Quarterly Performance (Standalone)

JK Lakshmi Cement | 1QFY2014 Result Update

Y/E March (` cr)

1QFY2014

4QFY2013

% Chg

1QFY2013

% Chg

FY2013

FY2012

% Chg

Net sales

457

536

(14.7)

534

(14.4)

2,055

1,718

19.6

Net raw-material costs

101

156

(35.0)

113

(10.4)

486

368

32.3

(% of sales)

22.2

29.1

21.2

23.7

21.4

Power & fuel

103

88

17.0

116

(11.2)

406

414

(1.8)

(% of sales)

22.6

16.5

21.8

19.8

24.1

Staff costs

30

26

14.1

28

8.0

113

98

15.1

(% of sales)

6.6

4.9

5.2

5.5

5.7

Freight & forwarding

102

118

(13.3)

104

(1.3)

422

331

27.2

(% of sales)

22.4

22.1

19.4

20.5

19.3

Other expenses

49

52

(4.4)

51

(2.0)

199

172

15.9

(% of sales)

10.8

9.7

9.5

9.7

10.0

Total Expenditure

387

441

(12.3)

412

(6.1)

1,626.0

1,383

17.6

Operating Profit

70

95

(26.1)

122

(42.6)

429

335

28.0

OPM

15.4

17.7

(237)bp

22.9

(754)bp

20.9

19.5

136bp

Interest

20

18

9.6

21

(2.8)

84

87

(4.4)

Depreciation

36

49

(28.2)

33

8.1

149

130

14.8

Other income

3

23

(87)

4.8

(37.5)

55

63

(12.5)

PBT (excl. Extr. Items)

18

51

(65.1)

74

(75.9)

252

181

38.9

Extr. Income/(Expense)

16

39

PBT (incl. Extr. Items)

18

51

(65.1)

74

(75.9)

236

142

65.7

Provision for taxation

2

1

23

59.6

34

75

(% of PBT)

11.1

2.7

30.9

25.3

23.9

Adjusted PAT

16

49

(68.1)

51

(69.0)

192

148

30.5

PATM

3.5

9.2

9.5

9.4

8.6

EPS (`)

1.3

4.2

4.2

16.3

12.1

Source: Company, Angel Research

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

Source: Company, Angel Research

J K Lakshmi Cement | 1QFY2014 Result Update Exhibit 3: 1QFY2014 – Actual vs Angel

JK Lakshmi Cement | 1QFY2014 Result Update

Exhibit 3: 1QFY2014 – Actual vs Angel estimates

(` cr)

Actual

Estimates

Variation (%)

Net Sales

457

502

(9.1)

Operating Profit

70

112

(37.3)

OPM (%)

15.4

22.3

(693)bp

Net Profit

16

50

(68.7)

Source: Company, Angel Research

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 company’s 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 company’s 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)

1QFY14

4QFY13

1QFY13 yoy chg (%) qoq chg (%)

Net Realization/tonne Raw-Material* Cost/tonne

3,745

3,747

3,842

(2.5)

(0.0)

1,030

917

820

25.6

12.3

Power and Fuel cost/tonne

847

618

838

1.1

37.1

Freight Cost/tonne

840

827

747

12.4

1.6

Other Cost/tonne Operating costs/tonne

406

362

363

11.7

12.1

3,170

3,082

2,962

7.0

2.8

Operating Profit/tonne

576

665

880

(34.6)

(13.4)

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

J K Lakshmi Cement | 1QFY2014 Result Update Exhibit 5: Volume performance 1.45 1.43 1.42

JK Lakshmi Cement | 1QFY2014 Result Update

Exhibit 5: Volume performance

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

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 company’s 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 company’s cement capacity beyond 10mtpa.

J K Lakshmi Cement | 1QFY2014 Result Update Investment rationale Presence in high growth region:

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 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.

Exhibit 6: Recommendation summary

Company

Reco

CMP

Tgt. Price

Upside

FY2015E

FY2015E

FY2013-15E

FY2015E

EV/tonne^

 

(`)

(`)

(%)

P/BV (x)

P/E (x)

EPS CAGR

RoE (%)

US $

ACC*

Buy

1,164

1,361

17.0

2.5

14.3

4.5

18.2

100

Ambuja Cements*

Neutral

179

-

-

2.6

16.0

4.4

17.2

126

India Cements

Neutral

46

-

-

0.4

4.2

35.1

9.0

65

JK Lakshmi

Buy

54

79

47.4

0.4

2.9

6.1

14.3

23

Madras Cement

Neutral

157

-

-

1.2

7.0

14.4

17.8

62

Shree Cements#

Neutral

4,061

-

-

2.5

10.8

16.4

25.6

128

UltraTech Cements

Neutral

1,670

-

-

2.3

14.7

8.2

16.6

165

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

Exhibit 7: EV/tonne band

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

Source: BSE, Company, Angel Research

J K Lakshmi Cement | 1QFY2014 Result Update Company Background JK Lakshmi Cement (JKLC) is

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)

FY10

FY11

FY12

FY13

FY14E

FY15E

Total operating income

1,491

1,319

1,718

2,055

2,235

2,684

%

chg

21.7

(11.5)

30.3

19.6

8.8

20.1

Total expenditure

1,066

1,136

1,390

1,626

1,802

2,109

Net raw material

234

204

368

486

540

617

Other mfg. costs

290

392

414

406

453

527

Personnel

85

81

98

113

125

137

Other

457

459

511

620

684

828

EBITDA

425

183

328

429

433

574

%

chg

36.7

(56.9)

79.1

30.7

1.1

32.6

(% of net sales)

28.5

13.9

19.1

20.9

19.4

21.4

Depreciation & amortization

80

85

130

149

163

235

EBIT

345

99

198

280

270

340

%

chg

42.7

(71.4)

101.1

41.1

(3.4)

25.6

(% of net sales)

23.1

7.5

11.5

13.6

12.1

12.7

Interest & other charges

55

60

80

84

100

116

Other income

35

21

63

55

70

70

(% of PBT)

10.5

26.8

44.4

23.6

29.0

23.7

Recurring PBT

324

60

182

252

240

293

%

chg

43.7

(81.6)

204.5

38.3

(4.8)

22.5

Extraordinary expense/(Inc.)

(6)

(19)

39

16

-

-

PBT (reported)

331

79

143

235

240

293

Tax

90

20

34

60

63

77

(% of PBT)

27.1

25.0

23.8

25.3

26.3

26.3

PAT (reported)

241

59

109

176

177

216

ADJ. PAT

235

40

148

192

177

216

%

chg

32.1

(82.9)

269.0

29.7

(8.1)

22.5

(% of net sales)

15.7

3.0

8.6

9.3

7.9

8.1

Basic EPS (`)

19.2

3.3

12.1

16.3

15.0

18.4

Fully diluted EPS (`)

19.2

3.3

12.1

16.3

15.0

18.4

%

chg

32.1

(82.9)

269.0

34.9

(8.1)

22.5

J K Lakshmi Cement | 1QFY2014 Result Update Balance sheet (Standalone) Y/E March ( `

JK Lakshmi Cement | 1QFY2014 Result Update

Balance sheet (Standalone)

Y/E March (` cr)

FY10

FY11

FY12

FY13

FY14E

FY15E

SOURCES OF FUNDS

Equity Share Capital

61

61

61

59

59

59

Preference Capital

-

-

-

-

-

-

Reserves& Surplus

960

985

1,114

1,201

1,360

1,558

Shareholders Funds

1,021

1,046

1,175

1,260

1,419

1,617

Total Loans

922

997

1,070

1,343

1,613

1,863

Deferred Tax Liability

92

107

123

113

113

113

Other long term liabilities

28

31

31

31

31

Long term provisions

3

4

4

4

4

Total Liabilities

2,035

2,182

2,403

2,751

3,179

3,628

APPLICATION OF FUNDS

Gross Block

1,904

2,319

2,450

2,678

2,928

4,828

Less: Acc. Depreciation

841

938

1,121

1,244

1,406

1,641

Net Block

1,063

1,381

1,329

1,435

1,522

3,187

Capital Work-in-Progress

182

41

294

688

938

(262)

Investments

481

528

454

410

410

410

Long term loans and adv.

191

369

369

369

369

Current Assets

666

297

339

242

387

440

Cash

220

89

89

13

81

43

Loans & Advances

341

61

92

64

132

203

Other

104

148

158

165

174

195

Current liabilities

357

256

383

393

447

517

Net Current Assets

309

42

(44)

(151)

(60)

(77)

Mis. Exp. not written off

-

-

-

-

-

-

Total Assets

2,035

2,182

2,403

2,751

3,179

3,628

J K Lakshmi Cement | 1QFY2014 Result Update Cash flow statem ent (Standalone) Y/E March

JK Lakshmi Cement | 1QFY2014 Result Update

Cash flow statement (Standalone)

Y/E March (` cr)

FY10

FY11

FY12

FY13

FY14E

FY15E

Profit before tax

331

79

143

235

240

293

Depreciation

80

85

130

149

163

235

Change in working Capital

(45)

(12)

17

31

(23)

(22)

Less: Other income

35

21

63

55

70

70

Direct taxes paid

90

20

34

60

63

77

Cash flow from operations

241

111

193

301

247

360

(Inc)/ Dec in fixed Assets

(228)

(274)

(385)

(622)

(500)

(700)

(Inc)/ Dec in investments

(392)

(47)

74

44

-

-

Other income

35

21

63

55

70

70

Cash flow from investing

(585)

(300)

(247)

(523)

(430)

(630)

Issue of equity

(97)

Inc./(Dec.) in loans

219

75

73

273

270

250

Dividend paid (Incl. Tax)

36

18

18

18

18

18

Others

(54)

12

Cash flow from financing

238

57

55

146

252

232

Inc./(Dec.) in cash

(106)

(132)

0

(76)

69

(39)

Opening cash balances

327

220

89

89

13

81

Closing cash balances

220

89

89

13

81

43

J K Lakshmi Cement | 1QFY2014 Result Update Key ratios (Standalone) Y/E March FY10 FY11

JK Lakshmi Cement | 1QFY2014 Result Update

Key ratios (Standalone)

Y/E March

FY10

FY11

FY12

F13

FY14E

FY15E

Valuation ratio (x)

P/E (on FDEPS)

2.8

16.3

4.4

3.3

3.6

2.9

P/CEPS

2.0

4.6

2.7

1.9

1.9

1.4

P/BV

0.7

0.6

0.6

0.5

0.4

0.4

Dividend yield (%)

5.5

2.7

2.7

2.8

2.8

2.8

EV/Sales

0.5

0.8

0.6

0.5

0.4

0.9

EV/EBITDA

1.9

6.0

3.1

2.3

2.1

4.2

EV / Total Assets

0.4

0.5

0.4

0.4

0.3

0.7

Per share data (`)

EPS (Basic)

19.2

3.3

12.1

16.3

15.0

18.4

EPS (fully diluted)

19.2

3.3

12.1

16.3

15.0

18.4

Cash EPS

26.2

11.7

19.5

27.6

28.8

38.3

DPS

2.9

1.5

1.5

1.5

1.5

1.5

Book Value

80.9

84.3

94.8

105.8

119.2

136.1

DuPont analysis (%)

EBIT margin

23.1

7.5

11.5

13.6

12.1

12.7

Tax retention ratio

72.9

75.0

76.2

74.7

73.7

73.7

Asset turnover (x)

1.2

0.9

1.0

1.0

0.9

0.9

ROIC (Post-tax)

20.2

5.1

8.8

10.0

7.9

8.5

Cost of debt (Post Tax)

4.9

4.7

5.9

5.2

5.0

4.9

Leverage (x)

0.9

0.9

0.9

1.0

1.1

1.1

Operating ROE

33.6

5.5

11.6

14.7

11.2

12.7

Returns (%)

ROCE (Pre-tax)

19.1

4.7

8.7

10.9

9.1

10.0

Angel ROIC (Pre-tax)

31.2

7.4

12.8

17.5

16.0

13.1

ROE

25.3

3.9

13.3

15.8

13.2

14.3

Turnover ratios (x)

Asset turnover (Gross Block)

0.8

0.6

0.7

0.8

0.8

0.7

Inventory / Sales (days)

17

27

25

21

19

17

Receivables (days)

6

8

7

8

9

8

Payables (days)

106

98

84

87

85

83

WC cycle (ex-cash) (days)

16

6

(19)

(26)

(25)

(18)

Solvency ratios (x)

Net debt to equity

0.2

0.4

0.4

0.7

0.8

0.9

Net debt to EBITDA

0.5

2.1

1.6

2.1

2.6

2.5

Interest coverage (EBIT/ Int.)

6.3

1.6

2.5

3.3

2.7

2.9

Research Team Tel: 022 - 39 357800 DISCLAIMER J K Lakshmi Cement | 1QFY2014 Result

Research Team Tel: 022 - 39357800

DISCLAIMER

JK Lakshmi Cement | 1QFY2014 Result Update

E-mail: research@angelbroking.com

Website: www.angelbroking.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 ` 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%)