1QFY2012 Result Update | Cement

July 29, 2011

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 (4.8) 1.8 130bp (28.8) 1QFY2011 324 56 17.4 17 % chg yoy 22.7 40.5 252bp 35.3

`44 `52
12 Months

1QFY2012 397 79 19.9 23

4QFY2011 417 78 18.6 32

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 557 0.9 68/41 61957 5 18,197 5,482 JKLC.BO JKLC@IN

JK Lakshmi Cement (JKLC) reported a 35.3% yoy improvement in its bottom line during 1QFY2012, which was ahead of our estimates due to 10% growth in volumes and an impressive 10.1% improvement in realisation. The companys realisation came in higher by 5.8% even on a sequential basis, although dispatches were down by 11%, indicating a slowdown in demand. EBITDA per tonne stood at `657, up 10.7% yoy, despite higher power and fuel costs and freight costs aided by strong improvement in realisation. We maintain our Buy recommendation on the stock. OPM at 19.9%, up 252bp yoy: JKLC registered 22.7% yoy top-line growth to

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 44.2 23.8 7.6 24.4

`397cr. The companys cement dispatches rose by healthy 10% yoy to 1.13mn tonnes, while realisation improved by 10.1% yoy to `3,489/tonne. The companys margin improved by 252bp yoy to 19.9% despite higher power and fuel and freight costs. Per tonne power and fuel and freight costs increased by 11.7% yoy and 14.8% yoy, respectively, during the quarter.
Outlook and valuation: We expect JKLC to post a decent 14.6% CAGR in its top line over FY201113E, aided by a 9% CAGR in dispatches over the period. At the CMP, the stock is trading cheaply at EV/EBITDA of 2.7x and EV/tonne of US$34 based on FY2013E. We have valued the stock at EV/EBITDA of 3x on FY2013E to arrive at a target price of `52. Although weak fundamentals would remain an overhang in the near term, we maintain our Buy recommendation on the stock primarily due to its cheap valuations.

Abs. (%) Sensex JKLC

3m (4.9)

1yr 1.1

3yr 31.9 14.0

(13.6) (28.5)

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 $) Installed cap. (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 1,491 21.7 241 35.0 19.7 28.5 2.2 0.5 26.0 19.1 0.4 29 4.7 1.6

FY2011 1,319 (11.5) 59 (75.5) 4.8 13.9 9.1 0.5 5.7 4.7 0.7 45 4.7 5.3

FY2012E 1,514 14.8 79 32.8 6.4 17.5 6.9 0.5 7.3 7.4 0.6 44 5.3 3.6

FY2013E 1,732 14.4 89 13.6 0.0 17.6 6.0 0.5 7.8 7.8 0.5 34 5.3 2.7

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

Please refer to important disclosures at the end of this report

JK Lakshmi | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance

Y/E March (` cr) Net revenue 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

1QFY2012 397 52 13 108 27 23 6 79 20 55 14 318 79 19.9 22 25 1 34 11 32 23 6 1.9

4QFY2011 417 76 18 103 25 24 6 76 18 59 14 339 78 18.6 15 23 11 50 18 36 32 8 2.6

% chg (qoq) (4.8) (31.5) 4.7 (7.0) 3.8 (6.0) (6.3) 1.8 130 45.8 6.8 (89.7) (32.9)

4QFY2010 324 48 15 88 27 21 7 63 19 47 15 267 56 17.4 12 22 2 24 8 31

% chg (yoy) 22.7 8.6 22.9 8.0 26.3 17.4 18.9 40.5 252 82.1 13.6 (39.7) 38.0

FY2011 1,322 204 15 392 30 81 6 264 20 195 15 1,135 187 14.1 51 85 28 79 20 25

FY2010 1,491 234 16 290 19 85 6 252 17 204 14 1,066 425 28.5 23 80 9 331 90 27 241 16 19.7

% chg (11.3) (12.7) 35.2 (5.4) 4.4 (4.5) 6.5 (56.0) (1,438) 121.3 5.7 211.2 (76.1) (78) (75.4)

(28.8)

17 5 1

35.3

59 4 4.8

Exhibit 2: Financial performance

500 400 300 200 100 0 4QFY10 1QFY11 2QFY11 3QFY11
Net Profit

25.0 20.0 15.0 10.0 5.0 0.0 4QFY11 1QFY12

Net revenue OPM (RHS)

(` cr)

Source: Company, Angel Research

July 29, 2011

(%)

JK Lakshmi | 1QFY2012 Result Update

Exhibit 3: 1QFY2012 Actual vs. Angel estimates

(` cr) Net sales Operating profit Net profit
Source: Company, Angel Research

Actual 397 79 23

Estimates 323 58 17

Variation (%) 23.0 36.2 31.5

Performance highlights
Top line grows by 22.7% yoy
JKLC registered 22.7% yoy growth in its top line to `397cr on account of a 10% increase in dispatches to 1.13mn tonnes and 10.1% improvement in realisations to `3,489/tonne. The companys realisation came in higher by 5.8% even on a sequential basis, although dispatches were down by 11% indicating the slowdown in demand.

Margin higher by 252bp yoy On the operating front, the companys OPM improved by 252bp yoy to 19.9% due to higher power and fuel and freight costs. Power and fuel and freight costs increased by 22.9% yoy and 26.3% yoy, respectively, during the quarter as against a lower 10% improvement in volumes. Per tonne analysis
In 1QFY2012, JKLCs per tonne cement realisation rose by 10.1% yoy to `3,489. Power and fuel costs per tonne increased by 11.7% yoy and 17% qoq to `965. Freight costs per tonne also grew by 14.8% yoy and 16% qoq to `705 due to higher diesel costs. Operating profit per tonne stood at `657 during the quarter, up 19.3% yoy and 10.7% qoq.

Exhibit 4: Per tonne analysis

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

1QFY12 3,489 466 965 705 493 657

4QFY11 3,298 608 824 608 469 594

1QFY11 3,169 472 864 614 462 551

%chg (yoy) 10.1 (1.3) 11.7 14.8 6.7 19.3

%chg (qoq) 5.8 (23.4) 17.0 16.0 5.1 10.7

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JK Lakshmi | 1QFY2012 Result Update

Investment arguments
Activity concentration in the northern region to protect margins: JKLC derives a major portion of its revenue from the northern region. Although this region is currently facing low demand, the long-term demand outlook for the northern region is good due to huge real-estate projects that are likely to come up in the region. We expect players in the region like JKLC to regain pricing power, with an improvement in the demand situation. Rising captive power usage to improve profitability: JKLC is planning to increase its total captive power capacity to 66MW from 48MW by FY2012E, which will be sufficient to meet a substantial portion of its power requirement on the expanded capacity of 8.1mtpa, thus improving its profitability substantially. Moreover, JKLC has tied up with VS Lignite, a KSK Group company, for the purchase of 21MW power every year for the next 20 years at a price of `3.2/unit, which is close to the companys captive power cost. Power supply from VS Lignite has commenced since 2QFY2011.

Outlook and valuation

We expect JKLC to post a decent 14.6% CAGR in its top line over FY201113E, aided by a 9.1% CAGR in dispatches over the period. At the CMP, the stock is trading cheaply at EV/EBITDA of 2.7x and EV/tonne of US$34 based on FY2013E. We have valued the stock at EV/EBITDA of 3x on FY2013E to arrive at a target price of `52. Although weak fundamentals would remain an overhang in the near term, we maintain our Buy recommendation on the stock primarily due to its cheap valuations.

Exhibit 5: Change in estimates

Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

FY2012E Earlier 1,529 1,286 243 91 67 100 25 75 Revised 1,514 1,249 265 99 77 105 26 79 Var. (%) (1.0) (2.9) 9.0 8.5 14.4 4.6 4.4 4.7 Earlier 1,717 1,445 272 92 75 118 29 88

FY2013E Revised 1,732 1,426 305 99 100 119 30 89 Var. (%) 0.8 (1.3) 12.3 7.3 33.3 0.8 2.3 1.4

July 29, 2011

JK Lakshmi | 1QFY2012 Result Update

Exhibit 6: Key assumptions

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

Revised estimates FY12E 4.7 0 96 580 994 FY13E 5.3 11.2 94 594 1,025

FY13E 5.3 0 100 624 1,027

5.3 0 90 614 1,000

Exhibit 7: Recommendation summary

Company ACC* Ambuja Cements* India Cem JKLC Madras Cem UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral CMP (`) 1,012 129 70 44 93 1,029 Tgt. Price (`) 52 Upside (%) 17.9 FY2013E P/BV (x) 2.4 2.2 0.6 0.5 1.0 2.0 FY2013E P/E (x) 16.3 15.4 8.0 6.0 8.8 12.1 FY2011-13E EPS CAGR (%) 2.2 1.1 98.6 22.8 8.6 29.1 FY2013E RoCE (%) 19.5 19.3 6.9 7.8 10.0 18.2 FY2013E RoE (%) 15.5 15.2 6.6 7.8 12.4 17.5

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

Exhibit 8: One-year forward EV/EBITDA band

2,500 2,000
EV 1x 2.25x 3.5x 4.75x

EV(` cr)

1,500 1,000 500 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

Source: Company, Angel Research

July 29, 2011

JK Lakshmi | 1QFY2012 Result Update

Exhibit 9: One-year forward EV/tonne band

2,500 2,000 1,500 EV $30 $50 $70 $90

EV (`cr)

1,000 500 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

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

July 29, 2011

JK Lakshmi | 1QFY2012 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& amortisation 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 FY2012E FY2013E 1,108 31.3 756 136 246 56 319 351 37.2 31.7 59 293 38.3 26 54 33 13 272 51.9 21.0 251 27 10.7 224 245 37.4 22.1 18.3 18.3
17.2

1,225 10.6 914 182 306 69 356 311 (11.6) 25.4 69 241 (17.5) 20 50 35 15 227 (16.5) 227 48 21.2 179 179 (27.0) 14.6 14.6 14.6
(20.2)

1,491 21.7 1,066 234 290 85 457 425 36.7 28.5 80 345 42.7 23 55 41 12 331 46.0 331 90 27.1 241 241 35.0 16.2 19.7 19.7
35.0

1,319 (11.5) 1,136 204 392 81 459 183 (56.9) 13.9 85 99 (71.4) 7 60 40 51 79 (76.2) 79 20 25.0 59 59 (75.5) 4.5 4.8 4.8
(75.5)

1,514 14.8 1,249 235 403 89 521 265 44.6 17.5 99 166 68.5 11 77 15 14 105 32.8 105 26 25.0 79 79 32.8 5.2 6.4 6.4
32.8

1,732 14.4 1,426 268 462 98 599 305 15.3 17.6 99 207 24.4 12 100 12 10 119 13.6 119 30 25.0 89 89 13.6 5.2 7.3 7.3
13.6

July 29, 2011

JK Lakshmi | 1QFY2012 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 1,432 624 128 546 51 337 159 399 147 2,332 2,469 1,135 1,334 1,274 128 695 89 426 180 477 217 2,953 581 642 708 (12) 1,338 770 831 703 35 1,569 960 1,021 922 92 2,035 985 1,046 1,017 107 2,171 1,046 1,107 1,117 107 2,332 1,117 1,178 1,667 107 2,953 61 61 61 61 61 61 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

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JK Lakshmi | 1QFY2012 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 35 48 235 (282) (76) 35 (323) (5) 29 (101) 67 (21) 348 327 331 80 (45) 41 90 235 (228) (392) 41 (578) 219 36 (54) 238 (106) 327 220 79 85 (8) 40 20 96 (307) (47) 40 (315) 96 18 (12) 90 (129) 220 91 82 (41) 91 51 532 38 51 89 105 99 (0) 15 26 162 (700) 400 15 (285) 100 18 119 99 (32) 12 30 144 (650) 12 (638) 550 18

July 29, 2011

JK Lakshmi | 1QFY2012 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 0.8 3.5 2.2 1.2 4.7 2.1 0.8 19 6 71 23 0.8 19 6 88 16 0.8 17 6 106 16 0.6 27 8 116 26 0.6 30 8 112 23 0.7 28 8 112 24 24.0 34.5 46.5 16.6 25.0 24.2 19.1 31.2 26.0 4.7 7.5 5.7 7.4 11.1 7.3 7.8 13.8 7.8 26.4 89.3 1.2 27.9 6.7 0.9 47.2 19.7 78.8 1.1 17.9 5.5 0.4 23.3 23.1 72.9 1.2 20.2 4.9 0.3 24.5 7.5 75.0 0.9 5.1 4.6 0.3 5.3 11.0 75.0 0.8 6.7 5.4 0.6 7.6 11.9 75.0 0.7 6.3 5.4 1.0 7.3 18.3 18.3 23.1 1.5 51.9 14.6 14.6 20.2 2.3 64.1 19.7 19.7 26.2 2.9 80.9 4.8 4.8 11.7 1.5 84.3 6.4 6.4 14.5 1.5 89.2 7.3 7.3 15.4 1.5 95.1 2.4 1.9 0.9 3.3 0.7 2.2 0.6 3.0 2.2 0.7 5.3 0.6 2.5 0.5 2.2 1.7 0.5 6.6 0.4 1.6 0.3 9.1 3.8 0.5 3.3 0.7 5.3 0.4 6.9 3.0 0.5 3.3 0.6 3.6 0.4 6.0 2.9 0.5 3.3 0.5 2.7 0.3 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

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JK Lakshmi | 1QFY2012 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%)

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