02/01/2008

JK Lakshmi Cement Ltd.

Initiating with a BUY 12mth Price Target: Rs 302

We are initiating coverage on JK Lakshmi cement with a 12-month price target of

Rs. 302.
Lalitha M.R (lalitha@ascilonline.com)
Research Head
Investment Highlights
Hari Prasad.B (hariprasad@ascilonline.com)
Research Analyst Latest quarter performance: The Company’s topline stood at Rs. 267.54
Crs for the quarter ended Sep 2007, an increase of 64% on a YoY basis.
Industry: Cement The company’s bottomline stood at Rs. 73.5 Crs for the sep quarter 2007,
Price Data an increase of 215% on a YoY basis.
Current Price (Rs) 206.55 Expansion plans to drive volumes: The Company has plans to increase
52 wk range (Rs) 223.00-97 its capacity from its current 3.4 Million Tones (MT) to 5 MT by the end of
Price Movement Chart first half of FY09.
Cost reduction measures: The measures such as commissioning of
1.6 250 captive power plant and replacement of high cost debt would boost the
1.1
190 bottomline growth.
Volume (in million)

130 Consistency in performance: JK Lakshmi has shown a 2-year CAGR of

0.6
70 net sales of 31.55% and 2 year CAGR of net profit of 187.32%
0.1 10 Strong Industry growth: The Indian cement industry is expected to grow
1/3/2007

6/8/2007
2/26/2007

4/18/2007

7/27/2007

9/17/2007

11/6/2007

12/27/2007

by 11% for the next 5 years.

Price

Financial Forecast
Stock Performance
1M 3M 6M The company’s topline is expected to be Rs.1262.30 Crs in FY08,
Absolute % 2.93 6.79 59.09 representing a YoY growth of 50%.
Adjusted PAT is expected to be Rs. 395.65 Crs in FY08, representing a
Stock Data YoY growth of 122%.
Mkt Cap (Rs Cr) 1,177.33
Last traded qty (NSE) 80,933 Financial Snapshot
No. of shares o/s(Cr) 5.70 (Rs Crs)
Free float (%) 58.3
Particulars FY06 FY07 FY08E
Share holding pattern chart
Net Sales 583.08 842.30 1,262.30
Shareholding Pattern as on Sep07
Adj PAT 52.79 175.76 395.65
8% 1%
12% Adj PAT Margin (%) 9.05% 20.87% 31.34%
41%
EPS (Rs.) 10.61 30.79 69.29
18% P/E 19.47 6.71 2.98
20% Mcap/Sales 2.02 1.40 0.93
Promoter Public
Institutions Non Promoter Corp
Foreign Others

Valuation
Key Indicators We expect a stronger topline and bottomline growth on the back of improved
EPS (Rs) 30.79 demand growth, higher price realisation in northern region, cost reduction
BV per share (Rs) 68.26 measures, capacity expansion and savings from captive power plant. At the CMP
ROE (%) 42.89 of Rs. 206.55, JK Lakshmi is trading at 2.98x its FY08 earnings. Compared to the
PAT Margin (%) 20.87 industry average (mid cap cement companies) PE of 7x, the stock is highly under
valued. We recommend a BUY on the stock with a 12M-price target of Rs.302,
Code which discounts the FY08 earnings by 4.3x.
NSE JKLAKSHMI
BSE 500380
Reuters JKCR.BO
Bloomberg JKLC.IN
Cement Production in India (in MT) Industry Outlook
Cement Production in India

160.00 Cement consumption has seen double-digit growth continuously for the
120.00
last 2 years. By all indications, the growth momentum would continue.
India’s per capita consumption of cement has grown by 30% to 130 kgs in
MT

80.00 6 years. However, it still remains much below the average World per
capita consumption of 355 Kgs as also the per capita consumption of
40.00 growing economies like Brazil (191 Kgs), Thailand (366 Kgs), etc. This
-
reflects the great potential, which the Indian cement industry has.
FY03 FY04 FY05 FY06 FY07
The Indian economy registered another year of impressive growth, driven
by the manufacturing sector. Acceleration in the development of various
real estate and infrastructure projects resulted in increase in cement
JK Lakshmi’s Sales Realization per bag consumption.
The infrastructure boom will generate an additional cement requirement
of 50 Million Tones (MT) in next 3 years and about 100 MT in next 5 years.
Cement Price per bag The capacity addition announcements total to 75 to 80 MT in the course
of next 3 to 4 years. Therefore the growth in capacity would be in
160
tandem with the cement requirement of the country.
150 National domestic cement demand has been at 150 MT during 2006-07.
140 The CAGR of cement consumption has been at around 8.5% during the
130 last 5 years and 10% during the last 2 years.
120 The Ministry of Commerce and Industry has projected an average growth
Rs

110
of 8.5% in GDP and 11% growth in cement consumption for the next 5
years.
100
Cement prices may see a marginal hike this year due to increase in the
90
input cost. The cost of input (coal, freight) has gone up by 5-6% in 2007,
80 which is likely to reflect in the cement prices.
2005 2006 2007

Company Profile
JK Lakshmi’s Cement Production
JK Lakshmi is in the cement operations since 1982 under the brand name “JK
Production Lakshmi Cement” with its plant location at Rajasthan. Its products include
32
Ordinary Portland cement, Portland Pozzolana Cement, Ready Mix Concrete and
31 plaster of Paris. The company’s current operating capacity is at 3.4 MT. By the
30 end of first half of FY09, the capacity shall stand enhanced to 5 MT. Further, the
company’s blended cement sale has increased to 68% in FY07 from 46% in FY06.
Lakh Tones

29

28 The cement consumption in JK Lakshmi’s markets of North & Gujarat combined

27 increased to 42.81 MT, an annual growth of 10.1%. The company’s sales to North
26
increased to 28% in FY07 compared to 19% in FY06.
25 For the year ended 31st March 2007, company’s turnover was Rs. 842.3 Crs and
FY05 FY06 FY07 PAT was Rs. 178 Crs.

JK Lakshmi’s Gross Sales

Gross Sales
1200

1000

800
Rs. Cr.

600

400

200

0
FY05 FY06 FY07
Investment Rationale
The company’s current operating capacity of 3.4MT is expected to be
increased to 5MT by the end of first half of FY09 and further to 7MT in
next 3 years. This would be funded by capital infusion of Rs. 75 Crs.
The company has set up a thermal power plant with a capacity of 36 MW
at an investment of Rs 160 Crs, which would reduce the power cost by Rs
2.10 per unit (Rs 160 per tone). This power plant has been commissioned
recently. As a result the company will be self-sufficient for most of its
power needs and the power cost shall be significantly reduced, thereby
improving the profitability further.
Further, the company has replaced high cost debts by cheaper funds to
the extent of Rs. 325 Crs, under the Corporate Debt Restructuring
purview, which in turn will reduce the interest costs.
The company’s topline stood at Rs. 842.3 Crs for the year ended March
2007, an increase of 44.46% on a YoY basis. The gross profit stood at Rs.
253.71 Crs for FY07, which was more than double compared to its
previous year. The gross margins were 30.12% in FY07 compared to
20.48% in FY06. The company’s adjusted PAT stood at Rs. 175.76 Crs, an
increase of 232.94% on a YoY basis.

Peer comparison

Name of the M Cap* Price* Face Value Net Sales PAT Mcap/ EPS P/E
Company (Rs Cr) (Rs) (Rs) TTM (Rs Cr) TTM (Rs Cr) Sales (Rs)
Guj. Sidhee Cem. 623.23 43.10 10.00 401.79 51.44 1.55 3.56 12.12
J K Cements Ltd 1,539.90 220.30 10.00 1,478.74 236.87 1.04 33.89 6.50
JK Lakshmi 1,177.34 206.55 10.00 1,024.31 255.50 1.15 44.82 4.61
Mangalam Cement 535.24 189.80 10.00 493.80 95.65 1.08 33.92 5.60
*As on 01/01/08

Investment Concern
The government monitors cement prices and any change in price may
adversely affect the company’s profit.
Financial Statements

Income Statement
(Rs Cr)
Particulars FY05 FY06 FY07
Sales 486.78 583.08 842.3
Total Expenses 422.08 463.65 588.59
Gross profit 64.7 119.43 253.71
Other income 17.07 12.2 13.33
Depreciation 48.95 53.07 44.33
PBIT 32.82 78.56 222.71
Interest 7.2 22.31 43.89
PBT 25.62 56.25 178.82
Tax -0.43 0.8 0.71
Reported PAT 26.05 55.45 178.11
Extraordinary items 4.76 2.66 2.35
Adjusted PAT 21.29 52.79 175.76

Ratio Analysis
Profitability Ratios
Gross profit margin 13.29% 20.48% 30.12%
EBIT/sales 6.74% 13.47% 26.44%
Other Inc/Sales 3.51% 2.09% 1.58%
Net profit margin 4.37% 9.05% 20.87%
Tax Rate -1.68% 1.42% 0.40%
Valuation Ratios
EPS 3.85 10.61 30.79
Mcap/Sales 2.42 2.02 1.40
P/E 53.64 19.47 6.71
Price/BV 9.34 6.57 3.03
EV/EBITDA 26.01 15.56 6.70
ROCE (%) 4.07% 9.22% 21.83%
ROE(%) 13.03% 24.76% 42.89%
 Balance Sheet
(Rs Cr)
Particulars FY05 FY06 FY07
SOURCES OF FUNDS
Share Capital 55.29 49.77 57.09
Equity 55.29 49.77 57.09
Preference - - -
Reserves and Surplus 108.12 163.44 352.72
Secured Loans 616.43 606.62 641.30
Unsecured Loans 81.10 85.07 88.34

TOTAL LIABILITIES 860.94 904.90 1,139.45

APPLICATION OF FUNDS
Gross Block 1,064.19 1,175.48 1,340.52
Less: Accumulated Depreciation 484.52 538.09 595.01
Net Block 579.67 637.39 745.51
Capital Work in Progress 20.31 87.89 76.62
Investments 171.61 0.11 58.11
Current Assets, Loans and Advances
Inventories 32.75 36.64 55.82
Sundry Debtors 16.24 20.99 17.76
Loans and Advances 34.20 124.29 116.17
Cash and Bank Balances 22.56 12.09 150.68
Total Current Assets 105.75 194.01 340.43
Current Liabilities
Sundry Creditors 23.23 24.86 45.88
Other liabilities 26.91 25.91 64.28
Provisions 5.30 1.77 9.10
Total Current Liabilities 55.44 52.54 119.26
Net Current Assets 50.31 141.47 221.17
Miscs Expe (not written off) 1.00 - -
Deffered Tax Asset 64.84 136.80 138.74
Deffered Tax Liability 26.80 98.76 100.70
Net Deferred tax 38.04 38.04 38.04

TOTAL ASSETS 860.94 904.90 1,139.45

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