Parag Parikh Financial Advisory Services (PPFAS) has recommended buy rating on JK Lakshmi Cement, in its February 9, 2012 research report.
“JK Lakshmi Cement, turn around in performance on the back of higher volumes, higher realisations, high capacity utilization and stability in fuel prices. Board announces buyback of shares worth Rs 975 mn. Stock price run-up on the back of improved performance as well as buy-back announcement. Valuations, however still remain attractive. Revenues for the quarter stood at Rs 4,401mn (up 39% YoY, 24% QoQ). Higher Revenues were driven by both, higher Volumes (1.22MT, up 13% YoY, 9% QoQ) as well as higher Realisations (Rs.3,588/ton, up 23% YoY, 14% QoQ). Demand growth was driven by Pre-election spending in North India, Rural spending in Rajasthan and Industrial spending in Gujarat. However, severe winter has hampered construction activity in Jan-Feb months, marginally impacting cement prices. The company reported a high capacity utilisation of 99% for the quarter. Revenue from sale of excess power stood at Rs 10mn. Selling power in open market remained largely unprofitable due to high fuel costs. Raw Material cost on a per ton basis stood at Rs 338. Comparisons cannot be made with previous quarters due to higher amount of 'Purchase of traded goods'. Company has leased small grinding facilities in NCR region. Clinker was sold to the leased units and cement bought back from them (which constituted as 'Purchase of traded goods').”
“Power and Fuel cost, on a per ton basis stood at Rs 886 (down 10% YoY, up 1% QoQ) due to stability in fuel prices along with higher efficiency (decrease in per ton power consumption). Captive power especially Waste Heat Recovery plant would have certainly saved power costs on a YoY basis. Freight cost on a per ton basis stood at Rs 677 (up 8% YoY, flat QoQ). Railways have recently hiked their freight rates. However, due to better demand scenario, the company was able to sell cement to nearer areas, thereby decreasing the lead distance and saving on overall freight costs. EBIDTA per ton stood at Rs 770 (up 236% YoY, 111% QoQ). EBIDTA margin for the quarter was 21.5% (7.9% for Q3FY11 and 11.6% for Q2FY12). Depreciation at Rs.256mn rose 20% YoY due to commissioning of new power plants during the year. Interest cost at Rs 222mn showed substantial increase of 60% due to higher gross debt and higher interest rates. Other income at Rs 148mn was up mainly because of the higher interest received on Deposits and Mutual funds. Net Profit for the quarter stood at Rs.492mn (v/s 46mn for Q3FY11 and 65mn for Q2FY12). EPS for the quarter stood at Rs 4.02.”
“The Board of JKLC has announced buyback of shares, to be effected through the exchanges. Total size of the buyback is Rs.975mn at a maximum price of Rs 70 per share. Assuming that entire buyback happens at the maximum price, the paidup equity will reduce by ~11.4%. Split Grinding unit of 0.55 MTPA at Jhajjar (Haryana) will be commissioned in the current quarter (Q4FY12). This will take the total grinding capacity from 4.75 MTPA to 5.3 MTPA. Additional revenues from this facility will kick in from the next financial year (FY13). The company has also expanded Kiln-2 to produce more clinker to be used for the Jhajjar grinding unit. The Kiln will produce additional 0.165 MT of clinker per annum. Kiln-3 will also undergo expansion for a similar capacity increase in the next financial year. Both the expansions combined will take the total clinker capacity of the company from 3.69 MTPA to 4.3 MTPA. Greenfield expansion at Durg (2.7 MTPA) is likely to commence by October 2013. 95% of land acquisition is complete and environmental clearances have been received. JKLC will also be setting up new RMC plants in Surat and Ahmedabad by April 2012.”
“The buyback will improve return ratios in the longer term as we believe that the buy back price (Rs.70) is at a discount to the fair value of equity shares of the company. The pace of capacity addition in the sector has slowed down over the past year. If the current growth in demand. continues, better realizations can be achieved going ahead Even after the recent run-up in stock price, at the CMP of Rs 62.95, valuations still remain attractive (EV/Ton of $54 and P/BV of 0.7x). Based on the above factors, we maintain BUY on JK Lakshmi Cement, says Parag Parikh Financial Advisory Services research report.
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