1QFY2013 Result Update | Cement

August 7, 2012

JK Lakshmi Cement
Performance Highlights
Quaterly results (Standalone)
Y/E March (` cr) Net revenue Operating profit OPM (%) Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
% chg qoq 1.2 7.2 127bp (27.7) 1QFY2012 397 79 19.9 23 % chg yoy 34.3 53.7 288bp 121.0

`100 -

1QFY2013 533 122 22.8 50

4QFY2012 527 113 21.5 70

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 1,177 527 0.9 101/36 59876 5 17,601 5,337 JKLC.BO JKLC@IN

JK Lakshmi Cement (JKLC)s net profit in Q1FY2013 grew by 121% yoy driven by a strong 23.3% yoy improvement in volumes due to healthy demand scenario in the companys key markets of Gujarat and north India. The volume growth was aided by additional volumes from the companys new split grinding capacity in Jhajjar, which was commissioned in April 2012. The realization too was higher by 9.6% yoy (up 3.6% qoq). OPM at 22.8%, up 288bp yoy: During 1QFY2013, JKLC registered a robust top-line growth of 34.3% yoy to `533cr. Volumes stood at 1.39mn tonne. Realization grew by 9.6% yoy and stood at `3,851/tonne. The company posted a healthy 288bp yoy improvement in its OPM to 22.8% led by a better realization and reduction in power and fuel costs. The companys per tonne power consumption fell yoy during the quarter and stood at 76kwh (vs 78kwh in 1QFY2012). Per-tonne coal consumption too fell on a y-o-y basis and stood at 83kwh (86kwh in 1QFY2012). Thus, per-tonne power and fuel costs fell 12.3% on a y-o-y basis. Outlook and valuation: Going forward, we expect JKLC to post a 15.4% CAGR in its top-line over FY2012-14. More than 79% of the companys capacities are located in Rajasthan, which is Indias biggest cement cluster state-wise. Further, the companys stock price has run up considerably over the past few months and we believe there is limited upside potential from the current levels considering the locational disadvantage it faces. Hence we recommend a Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 46.0 12.4 6.0 35.6

Abs. (%) Sensex JKLC

3m 4.1

1yr 1.7

3yr 16.1 55.3

58.3 134.4

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 30.5 1.2 3.9 4.7 1.3 65 9.1

FY2012
1,711 29.7 139 134.6 9.4 16.5 11.3 1.1 9.8 6.6 0.9 57 5.6

FY2013E
1,964 14.8 177 27.4 14.5 19.5 6.1 0.9 14.7 10.8 0.7 40 3.6

FY2014E
2,278 16.0 194 9.6 15.8 20.4 5.6 0.8 14.6 10.6 1.0 51 5.1

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

Please refer to important disclosures at the end of this report

JK Lakshmi Cement | 1QFY2013 Result Update

Exhibit 1: Quarterly Performance

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

1QFY2013 533 113 21.2 116 21.8 28 5.2 104 19.5 51 9.5 412 122 22.8 21 33 5 73 73 23 31.2 50.3 9.4 4.1

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 79 10 12.4 69.5 13.2 5.7

% Chg 1.2 (16.9) 16.7 (7.8) 11.7 (7.1) (0.4) 7.2 127bp 51.5 (39.1) (86) (7.9) (7.9)

1QFY2012 397 67 16.9 108 27.3 23 5.7 79 19.9 40 10.2 318 79 19.9 22 25 1.1 34 34 11

% Chg 34.3 68.1 7.5 22.1 31.1 24.9 29.5 53.7 288bp (6.2) 33.1 344.4 117.2 117.2

FY2012 1,711 368 21.5 414 24.2 98 5.8 331 19.4 179 10.5 1,390 321 18.8 80 169 70 143 30 173 34 19.7

FY2011 1,319 256 19.5 392 29.8 80 6.1 264 20.0 139 10.6 1,131 185 14.1 60 85 38 79 79 20 25.0 59 4.5 4.8

% Chg 29.7 43.4 5.5 22.5 25.7 28.6 22.9 73.1 468 31.7 99.7 83.2 81.2 119.1 73 134.6

(27.7)

22.8 5.7 1.9

121.0

139 8.1 11.3

Exhibit 2: Financial performance

(` cr) 600 500 400 300 200 100 0 4QFY11 1QFY12 2QFY12 3QFY12 Net Profit 4QFY12 1QFY13 Net Operating Income Source: Company, Angel Research OPM (RHS) 32 23 6 49 73 50 417 397 440 354 527 533 (%) 25.0 20.0 15.0 10.0 5.0

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JK Lakshmi Cement | 1QFY2013 Result Update

Exhibit 3: 1QFY2013 Actual vs Angel estimates

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

Actual 533 122 22.8 50

Estimates 482 126 26.2 68

Variation (%) 10.6 (3.8) (339)bp (26.1)

Performance highlights
Top-line up 34.3% yoy, driven by higher volumes
During 1QFY2013, JKLC registered a 34.3% yoy growth in its top-line to `533cr primarily on account of a 22.6% yoy improvement in volumes to 1.39mn tonne. The realization increased by 9.6% yoy (up 3.6% qoq) to `3,851/tonne. The company posted a healthy 288bp yoy improvement in its OPM to 22.8% lead by better realization and reduction in power and fuel costs. The companys power and fuel costs per tonne of cement fell 12.3% on a y-o-y basis. Power consumption per tonne of cement fell y-o-y and stood at 76kwh (vs 78kwh in 1QFY2012). The pertonne coal consumption too fell on a y-o-y basis and stood at 83kwh (86kwh in 1QFY2012). However, the company indicated that cost the per-tonne of petcoke stood at ~`6,950/tonne vs `6,587/tonne in 1QFY2012. The freight costs/tonne rose by 6.9% yoy to `750. For 1QFY2013, JKLC reported an operating profit per tonne of `878, up 25.4% on a y-o-y basis.

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

1QFY13 4QFY12 1QFY12 3,851 817 841 750 365 878 3,717 961 705 656 384 801 3,514 595 959 701 358 700

chg (%) yoy 9.6 37.1 (12.3) 6.9 1.9 25.4

chg (%) qoq 3.6 (15.0) 19.3 14.2 (5.0) 9.6

Exhibit 5: Volume performance

1.6 1.4 1.2 (mn tonnes) 1 0.8 0.6 0.4 0.2 0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 1.26 1.13 1.13 1.22 1.42 1.39

Source: Company, Angel Research

August 7, 2012

JK Lakshmi Cement | 1QFY2013 Result Update

Conference call highlights

JKLCs clinker capacity currently has risen to 4.13mtpa, from 3.96mtpa post the kiln expansion activities carried out by the company at the Rajasthan plant. During the quarter, the company commissioned a 0.55mtpa split grinding unit in Haryana. JKLC expects the 2.7mtpa Durg expansion with grinding units at three different locations to come on stream by 3QFY2014. The clinker capacity at Durg would be 1.5mtpa, along with a 0.9mtpa grinding facility. The company is yet to finalize locations for the other two proposed grinding units of 0.9mtpa each. These expansions, when complete, would take the companys cement capacity to 8mtpa. The company maintained that the planned cost of the Durg expansion would be `1,250cr. The company expects to add 3RMC plants each in FY2013 and FY2014 respectively.

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, state-wise, is India's second biggest capacity cluster, with a total capacity of 44.8mtpa as of FY2011. Capacities in Rajasthan face a huge demand-supply gap even after catering to surplus demand of nearby supplydeficit states (Haryana, Punjab, NCR, Chandigarh and Uttar Pradesh).

Outlook and valuation

Going forward, we expect JKLC to post a 15.4% CAGR in its top-line over FY201214E. Further, its stock price has run up considerably over the past few months and we believe there is limited upside potential from the current levels, considering the locational disadvantage it faces. Hence we recommend a Neutral rating on the stock.

August 7, 2012

JK Lakshmi Cement | 1QFY2013 Result Update

Exhibit 6: Change in estimates

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

FY2013E Earlier
1,938 1,568 370 98 40 219 54 165

FY2014E Var. (%)

1.4 0.9 3.4 (0.7) 3.7 7.2 7.2 7.2

Revised
1,964 1,581 383 97 42 235 58 177

Earlier
2,246 1,795 451 145 43 239 57 182

Revised
2,278 1,815 464 144 44 254 60 194

Var. (%)
1.4 1.1 2.8 (0.5) 1.1 6.1 6.1 6.1

Exhibit 7: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,335 191 86 100 173 3,069 1,638 Tgt. Price (`) Upside (%) FY2014E P/BV (x) 3.0 3.3 0.7 0.8 1.5 3.2 2.6 FY2014E P/E (x) 16.4 15.8 7.5 5.6 10.0 13.6 15.2 FY2012-14E EPS CAGR 7.3 21.4 8.5 41.7 3.1 67.7 9.9 FY2014E RoE (%) 19.0 19.8 9.5 14.6 16.2 26.0 18.3 EV/tonne^ US $ 129 162 52 45 66 110 160

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

Exhibit 8: One-year forward EV/Tonne band

30,000 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 $30 $50 $70 $90

Source: BSE, Company, Angel Research

August 7, 2012

JK Lakshmi Cement | 1QFY2013 Result Update

Company Background
JK Lakshmi Cement (JKLC) is a mid-sized cement company with current total capacity of 4.75mtpa spread across Rajasthan (4.2mtpa) and Gujarat (0.5mtpa). The company is looking forward to increase its total capacity to 5.3mtpa by commissioning a 0.55mtpa split grinding unit at Jhajjar in Haryana by March 2012. The company also has plans to set up a 2.7mtpa green field plant at Durg in Chhattisgarh by March 2013, taking its total capacity to 8.0mtpa.

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 8.9 171.1

FY2013E
1,964 14.8 1,581 378 454 106 643 383 35.8 19.5 97 285 87.6 14.5 92 42 17.8 235 64.3 235 58 24.7 177 177 62.4 9.0 16.3 16.3 83.3

FY2014E
2,278 16.0 1,815 422 510 117 766 464 21.2 20.4 144 319 12.0 14.0 110 44 17.3 254 8.1 254 60 23.7 194 194 9.6 8.5 17.8 17.8 9.6

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JK Lakshmi Cement | 1QFY2013 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 advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
632 327 216 89 262 370 1,569 666 220 341 104 357 309 2,035 1,760 747 1,013 97 89 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 2,500 1,218 1,282 894 354 369 409 54 181 174 443 (35) 2,864 3,800 1,363 2,437 44 354 369 463 32 239 191 498 (35) 3,170 1,569 2,035 61 770 831 703 35 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 54 1,182 1,236 1,470 123 31 4 2,864 54 1,358 1,412 1,600 123 31 4 3,170

FY2009 FY2010 FY2011

FY012 FY2013E FY2014E

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JK Lakshmi Cement | 1QFY2013 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
(5) 29 (101) 67 (21) 348 327 219 36 (54) 238 (106) 327 220 57 (132) 220 89 55 0 89 89 285 (35) 89 54 112 (22) 54 32 75 18 73 18

FY2009 FY2010 FY2011

227 69 22 34 48 236 (282) (76) 34 (324) 331 80 (45) 35 90 241 (228) (392) 35 (585) 79 85 (12) 21 20 111 (274) (47) 21 (300)

FY012 FY2013E FY2014E

173 130 (12) 70 34 186 (385) 74 70 (240) 235 97 (44) 42 58 188 (650) 100 42 (508) (97) 400 18 130 18 254 144 (22) 44 60 273 (450) 44 (406)

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JK Lakshmi Cement | 1QFY2013 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 2.1 1.6 0.4 1.9 1.9 0.9 2.8 3.1 0.9 2.6 2.9 0.8 19 6 88 16 0.8 17 6 106 16 0.6 27 8 98 6 0.7 26 7 82 (19) 0.8 23 8 95 (21) 0.7 21 8 95 (12) 16.6 25.0 24.1 19.1 31.2 25.3 4.7 7.4 3.9 6.6 9.8 9.8 10.8 18.2 14.7 10.6 14.8 14.6 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 4.7 0.9 5.5 8.9 80.3 1.0 7.1 6.2 0.9 8.0 14.5 75.3 0.9 9.9 5.5 1.1 14.7 14.0 76.3 0.9 9.3 5.4 1.2 13.8 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 94.8 16.3 16.3 25.3 1.6 112.6 17.8 17.8 31.2 1.6 128.8 6.9 4.9 1.6 2.3 1.2 4.7 0.9 5.2 3.8 1.2 2.9 0.9 3.2 0.7 30.5 8.5 1.2 1.5 1.3 9.1 0.8 11.3 4.6 1.1 1.5 0.9 5.6 0.7 6.1 4.0 0.9 1.6 0.7 3.6 0.5 5.6 3.2 0.8 1.6 1.0 5.1 0.8

FY2009 FY2010 FY2011

FY012 FY2013E FY2014E

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JK Lakshmi Cement | 1QFY2013 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, 2012

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