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JK Lakshmi Cement 3QFY2013 performance highlights and results update

Contributed by Angel Broking

JK Lakshmi Cement (JKLC)’s net profit in 3QFY2013 fell by 16.2% yoy impacted by steep increase in freight costs. Volume grew by a marginal 2.7% on a yoy basis. Realization rose by 9.8% on a yoy basis, but was down by 3.2% on a qoq basis.

OPM at 19.9%, down 153bp yoy: During 3QFY2013, JKLC registered a robust top-line growth of 12.2% yoy to Rs.494cr. Volumes stood at ~1.26mn tonne, up 2.7% on a yoy basis, impacted by slowdown in cement demand in all of the company’s markets. The company’s volume performance is much better than the de-growth/flattish performance posted by some of its peers as demand remained subdued during the quarter. Cement realization grew by 9.8% yoy and stood at Rs.3,689/tonne. OPM declined by 153bp yoy to 19.9%. Although power and fuel costs/tonne were down by 18.1% yoy aided by lower petcoke prices (down from Rs.7,000/tonne in 2QFY2013 to Rs.6,500/tonne in 3QFY2013) and better efficiency in power usage, freight costs/tonne shot up by 22.4% yoy due to increase in diesel prices and railway freight charges. EBITDA/tonne stood at Rs.781, up 1.4% on a yoy basis. However, on a sequential basis it declined by a steep 16.1% on account of fall in realization.

Outlook and valuation: Going ahead, we expect JKLC to post a 29.3% CAGR in its bottom-line over FY2012-14, due to its presence in high growth regions. At the current market price, the stock is currently trading at an EV/tonne of US$57 (on FY2014E capacity). We recommend a Neutral rating on the stock.