Buy JK Lakshmi Cement; target of Rs 79: Angel Broking

“JK Lakshmi Cement (JKLC) reported an impressive performance for 3QFY2012. The company’s bottom line came in at Rs49cr as against Rs4.6cr in 3QFY2011. Bottom-line growth was driven by strong 26.3% growth in realization, reduction in raw-material and power and fuel costs on per tonne basis and 59.2% growth in other income to Rs14.8cr. We recommend a Buy on the stock.”

“During 3QFY2012, JKLC registered top-line growth of 39.5% yoy to Rs440cr on account of healthy 12.8% yoy growth in dispatches to 1.22mn tonnes and strong realization growth of 26.3% yoy to Rs3,359/tonne. Despite higher freight costs and other expenses on per tonne basis, the company’s operating margin increased by 1,352bp yoy to 21.4%, aided by strong realization growth and 8% yoy savings in power and fuel cost on per tonne basis. JKLC’s operating profit rose by 279.0% yoy during the quarter to Rs94cr. Even after a 75.9% yoy increase in interest and higher tax expense (Rs12cr as against negative tax of Rs4cr in 3QFY2011), the bottom line came in at Rs49cr, aided by strong operating performance as well as a significant increase in other income.”

“Going forward, we expect JKLC to post a healthy 19% CAGR in its top line over FY2011-13E, aided by a 12.4% CAGR in dispatches over the period. At the CMP, the stock is trading at cheap valuations in terms of replacement cost (EV/tonne of US$29 on FY2013E capacity), even after considering its presence in unfavorable locations. We value the stock at EV/tonne of US$35 on FY2013E capacity to arrive at a target price of Rs79. Hence, we recommend a Buy rating on the stock,” says Angel Broking research report.

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