4QFY2013 Result Update | Cement

June 3, 2013

JK Lakshmi Cement
Performance Highlights
Quarterly results (Standalone)
Y/E March (` cr) Net revenue Operating profit OPM (%) Net profit 4QFY2013 536 95 17.7 49 3QFY2013 494 98 19.9 41 % chg qoq 8.5 (3.1) (213)bp 20.0 4QFY2012 527 113 21.5 70 % chg yoy 1.7 (16.2) (380)bp (28.9)

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 1,286 787 1.0 172/60 44,142 5 19,610 5,939 JKLC.BO JKLC@IN

`109 `143
12 Months

Source: Company, Angel Research

JK Lakshmi Cement (JKLC) posted a 28.9% yoy fall in its net profit for 4QFY2013, impacted by a steep increase in freight and raw material costs. Volume remained flat on a yoy basis. Realization, although flat on a yoy basis, fell 4.6% on a sequential basis. OPM at 17.7%, down 213bp yoy: JKLC posted a 1.8% yoy increase in top-line to `536cr, which was in-line with our estimates. Volumes remained flat yoy at 1.43mn tonne as demand remained weak in the companys key markets (north and west) due to the economic slow-down and labour shortage in some parts of north, which affected construction activities. Poor demand resulted in a decline in cement prices. The OPM stood at 17.8%, down 380bp on a yoy basis. The OPM declined on account of surge in raw material and freight costs. Raw material and freight costs rose on account of a substantial increase in railway freight fares. The EBITDA per tonne stood at `665, down 17% on a yoy basis. A change in the method of providing for depreciation on split grinding plants pushed up depreciation costs by `11.5cr for the quarter. The company also incurred `16cr (depreciation charge pertaining to earlier years) of extra-ordinary expenses due to a change in the methodology of providing for depreciation. Such a change in methodology is to avail to tax benefits. Thus, the recurring PAT fell by 28.9% yoy to `49cr. Outlook and valuation: Going ahead, we expect JKLC to post a 15.6% CAGR in its bottom-line over FY2013-15. At the current market price, the stock is trading at an EV/tonne of US$44 (on FY2015E capacity). We maintain our Buy rating on the stock with a target price of `143.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 46.0 10.7 10.5 32.9

Abs. (%) Sensex JKLC

3m 3.7 (12.4)

1yr 22.8 77.6

3yr 15.2 73.6

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

FY2012 1,718 30.3 148 269.0 12.1 19.1 9.0 1.2 13.3 8.7 1.0 61 5.2

FY2013 2,055 19.6 192 29.9 16.3 20.9 6.7 1.0 15.8 11.3 0.7 38 3.1

FY2014E 2,247 9.3 210 9.1 17.8 21.0 6.1 0.9 15.5 11.5 0.5 27 2.2

FY2015E 2,742 22.0 257 22.4 21.8 0.0 5.0 0.8 16.3 12.5 0.9 44 3.9

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

Please refer to important disclosures at the end of this report

JK Lakshmi Cement | 4QFY2013 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

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

3QFY2013 494 124 25.1 91 18.5 30 6.1 104 21.1 46 9.4 396 98 19.9 22 34 13 54 54 13 23.7 41 8.4 3.5

% Chg 8.5 25.9 (3.0) (12.6) 13.6 11.8 11.4 (3.1) (213)bp (18.9) 45.0 87 (5.9) (5.9)

4QFY2012 527 136 25.8 100 19.0 30 5.7 93 17.6 54 10.3 413 113 21.5 14 54 33.4 79 79 10 12.4

% Chg 1.7 14.7 (11.4) (12.7) 27.2 (4.7) 6.6 (16.2) (380)bp 34.4 (8.3) (29.7) (35.9) (35.9)

FY2013 2,055 486 23.7 406 19.8 113 5.5 422 20.5 199 9.7 1,626 429 20.9 84 149 55 252 16 236 60 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 23.9 147 8.6 12.0

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

20.0

70 13.2 5.7

(28.9)

192 9.4 16.3

Exhibit 2: Financial performance

(` cr) 600 500 400 300 200 100 0 3QFY12 4QFY12 1QFY13 Net Operating Income 2QFY13 3QFY13 4QFY13 Net Profit OPM (RHS) 49 70 50 51 41 49 440 527 533 491 494 536 (%) 25.0 20.0 15.0 10.0 5.0

Source: Company, Angel Research

June 3, 2013

JK Lakshmi Cement | 4QFY2013 Result Update

Exhibit 3: 4QFY2013 Actual vs Angel estimates

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

Actual 536 95 17.7 49

Estimates 531 102 19.1 42

Variation (%) 0.9 (6.4) (140)bp 17.9

Performance highlights
Top-line up 1.7% yoy
JKLC posted a 1.8% yoy increase in top-line to `536cr, which was in-line with estimates. Volumes remained flat yoy at 1.43mn tonne as demand remained weak in the companys key markets (north and west) due to the economic slow-down and labour shortage in some parts of north, thus affecting construction activities. Poor demand resulted in a decline in cement prices. Prices declined further in the month of April, but recovered to some extent in the month of May.

EBITDA per tonne down 17% yoy

The OPM for the quarter stood at 17.8% down 380bp on a yoy basis. The OPM declined on account of surge in raw material and freight costs. Raw material and freight costs rose on account of a substantial increase in railway freight fares. On a weighted basis, railway freight fares have gone up by 22% yoy. On a positive note, the companys P&F costs were lower on a yoy basis due to the decline in the prices of petcoke. The EBITDA per tonne stood at `665, down 17% on a yoy basis.

Recurring PAT down by 28.9% yoy

During the quarter, the company changed the method of providing depreciation on split grinding plants. This pushed up depreciation costs by `11.5cr for the quarter. The company also incurred `16cr (depreciation charge pertaining to earlier years) of extra-ordinary expenses due to a change in the methodology of providing for depreciation. Such a change in the methodology is to avail to tax benefits. Thus, the recurring PAT fell by 28.9% yoy to `49cr. The companys overall operating costs/tonne too went up by 5.6% on a yoy basis. While raw material costs/tonne went up by 13.5% on a yoy basis, freight costs/tonne rose by 26.0% yoy. EBITDA/tonne stood at `665, down 17% on a yoy basis. On a sequential basis EBITDA/tonne declined by a steep 14.8% on account of fall in realization.

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JK Lakshmi Cement | 4QFY2013 Result Update

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 Source: Company, Angel Research 4QFY13 3,747 1,091 618 827 362 3,082 665 3QFY13 3,928 986 725 828 369 3,148 781 4QFY12 yoy chg (%) qoq chg (%) 3,717 961 705 656 384 2,919 801 0.8 13.5 (12.3) 26.0 (5.7) 5.6 (17.0) (4.6) 10.6 (14.7) (0.2) (1.8) (2.1) (14.8)

Exhibit 5: Volume performance

1.45 1.4 1.35 (mn tonnes) 1.3 1.25 1.2 1.15 1.1 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4Q13 1.22 1.21 1.42 1.39 1.43

1.26

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 plant at Durg is expected to be commissioned by September 2014. The clinker capacity
at Durg would be of 1.5mtpa; further, the company has proposed to set up two grinding units in Durg and one in Orissa. The company maintained that the Durg plant is insured and the estimated losses of `120cr due to the arson in the plant during April would be reimbursed by the insurers. 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 October 2014. 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 April 2014, the Surat unit is expected to get commissioned by March 2015. These expansions, when complete, would take the companys cement capacity beyond 10mtpa.

June 3, 2013

JK Lakshmi Cement | 4QFY2013 Result Update

Investment rationale
Presence in high growth region to result in healthy volume growth: JKLC has 60% and 40% exposure to the northern and western regions of the country, while it has no presence in the south. We expect the company to post a healthy 11% CAGR in volumes over FY2013-15 aided by capacity additions. 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 15.6% CAGR in its bottom-line over FY2013-15. At the current market price, the stock is trading at an EV/tonne of US$44 (on FY2015E capacity). We maintain our Buy rating on the stock with a target price of `143.

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Accum. Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,224 179 68 109 222 4,877 1,859 Tgt. Price (`) 1,361 143 Upside (%) 11.2 30.9 FY2015E P/BV (x) 2.5 2.6 0.6 0.8 1.5 3.0 2.5 FY2015E P/E (x) 13.4 14.7 6.3 5.0 7.8 13.2 15.5 FY2013-15E EPS CAGR 10.6 9.1 35.1 15.6 24.6 15.2 9.3 FY2015E RoE (%) 20.0 18.6 9.0 16.3 21.3 25.4 17.3 EV/tonne^ US $ 116 157 59 38 92 164 191

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

Exhibit 7: One-year forward 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-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 EV/tonne $30 $45 $60 $75

Source: BSE, Company, Angel Research

June 3, 2013

JK Lakshmi Cement | 4QFY2013 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 2QFY2015.

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 41.2 13.6 84 56 23.6 252 38.4 16 236 60 25.3 176 192 29.9 9.4 16.3 16.3 35.0 FY14E 2,247 9.3 1,774 525 441 125 685 472 10.1 21.0 152 321 14.5 14.3 95 59 20.7 285 13.0 285 75 26.3 210 210 9.1 9.3 17.8 17.8 9.1 FY15E 2,742 22.0 2,109 608 526 137 838 633 34.0 23.1 228 405 26.2 14.8 110 53 15.3 348 22.4 348 92 26.3 257 257 22.4 9.4 21.8 21.8 22.4

June 3, 2013

JK Lakshmi Cement | 4QFY2013 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 2,609 1,270 1,340 783 407 369 242 13 64 165 586 (344) 2,555 2,659 1,421 1,238 1,333 407 369 347 31 143 172 677 (331) 3,016 4,559 1,650 2,910 33 407 369 498 88 214 196 782 (283) 3,435 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 1,147 113 31 4 2,555 59 1,393 1,452 1,417 113 31 4 3,016 59 1,632 1,691 1,597 113 31 4 3,435

FY10

FY11

FY2012

FY013

FY14E

FY15E

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JK Lakshmi Cement | 4QFY2013 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)

F13E
236 149 224 56 60 494 (648) 47 56 (546) (97) 77 18 (14) (24) (76) 89 13

FY14E
285 152 5 59 75 308 (600) 59 (541) 270 18 252 19 13 31

FY15E
348 228 9 53 92 441 (600) 53 (547) 180 18 162 57 31 88

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JK Lakshmi Cement | 4QFY2013 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 0.6 1.7 3.4 0.7 2.1 3.4 0.7 1.7 3.7 0.8 17 6 106 16 0.6 27 8 98 6 0.7 25 7 84 (19) 0.8 21 8 109 (43) 0.9 19 9 130 (58) 0.8 16 8 126 (49) 19.1 31.2 25.3 4.7 7.4 3.9 8.7 12.8 13.3 11.3 19.2 15.8 11.5 24.7 15.5 12.5 19.5 16.3 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 10.5 5.6 0.9 14.9 14.3 73.7 1.0 10.0 5.5 0.9 14.3 14.8 73.7 1.0 10.8 5.4 1.0 16.0 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 17.8 17.8 30.7 1.5 122.1 21.8 21.8 41.2 1.5 142.4 5.7 4.2 1.4 2.7 1.0 3.5 0.7 33.3 9.3 1.3 1.3 1.4 9.7 0.8 9.0 5.6 1.2 1.3 1.0 5.2 0.7 6.7 4.0 1.0 1.4 0.7 3.1 0.5 6.1 3.6 0.9 1.4 0.5 2.2 0.3 5.0 2.7 0.8 1.4 0.9 3.9 0.7

FY10

FY11

FY12

F13E

FY14E

FY15E

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JK Lakshmi Cement | 4QFY2013 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%)

June 3, 2013

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