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JK Lakshmi Cement 3QFY2012 performance highlights and results update

Contributed by Angel Broking

JK Lakshmi Cement (JKLC) reported an impressive performance for 3QFY2012. The company’s bottom line came in at Rs.49cr as against Rs.4.6cr 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 Rs.14.8cr. We recommend a Buy on the stock.

OPM at 21.4%, up 1,352bp yoy: During 3QFY2012, JKLC registered top-line growth of 39.5% yoy to Rs.440cr on account of healthy 12.8% yoy growth in dispatches to 1.22mn tonnes and strong realization growth of 26.3% yoy to Rs.3,359/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 Rs.94cr. Even after a 75.9% yoy increase in interest and higher tax expense (Rs.12cr as against negative tax of Rs.4cr in 3QFY2011), the bottom line came in at Rs.49cr, aided by strong operating performance as well as a significant increase in other income.

Outlook and valuation: 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 Rs.79. Hence, we recommend a Buy rating on the stock.