JK Lakshmi Cement BUY

Management
meeting
13 July 2016 Institutional Equities
Better days ahead Company update
During interactions with investors in Singapore, organized by CMP Rs402 Priceperformance(%)
IIFL, management of JK Lakshmi Cement (JKLC) indicated that

12mthTP(Rs) 520(29%) 1M 3M 1Y
expansion plans of JKLC are on track to reach 13mtpa cement
Absolute(Rs) 13.9 16.9 22.9
capacity by September 2017. Management indicated that the Marketcap(US$m) 709
northern region (~80% of volumes for JKLC emanates from the Absolute(US$) 13.2 18.7 16.7
Enterprisevalue(US$m) 982
north and west regions) will have low capacity additions over the Rel.toSensex 10.1 6.5 23.1
Bloomberg JKLCIN
next two years, which is likely to improve utilisation and pricing Cagr(%) 3yrs 5yrs
power for the industry. JKLC will focus on cost reduction in its Sector Cement EPS 0.9 (8.8)
eastern plants (commenced in 4QFY15). We upgrade JKLCs FY17

Ebitda/EPS estimates by 5%/44% to reflect better-than-expected Shareholdingpattern(%) Stockperformance

improvement in prices in the northern region in 1QFY17, likely Promoter 45.9 Shares(000')
Volume(LHS)
(Rs)
lower tax rate, and interest outgo. Recommend BUY with target FII 13.1 Price(RHS)
3,000 500
price of Rs520 (target multiple of 10x EV/Ebitda on FY18 DII 19.7 2,500 400
estimates and implied EV/tonne of USD95) Others 21.2 2,000
300
1,500
Northern region to have low capacity additions over the next two 52WkHigh/Low(Rs) 415/253 1,000 200
years: Capacity utilisation for the northern region was ~80% for FY16. Shareso/s(m) 118 500 100
With capacity addition of just ~2-4mtpa likely for FY17 and FY18, Dailyvolume(US$m) 0.7 0 0

Jul14

Nov14

Jul15

Nov15

Jul16
Sep14

Mar15

Sep15

Mar16
Jan15

Jan16
May15

May16
utilisation for the northern region is likely to improve and result in better DividendyieldFY16ii(%) 0.1
profitability. JKLC derives ~50% volumes from the northern region and Freefloat(%) 54.1
~30% from the western region for which it supplies clinker from the
Financialsummary(Rsm)
northern region. The eastern region is likely to have sluggish profitability
Y/e31Mar,Parent FY14A FY15A FY16ii FY17ii FY18ii
for the next one year due to increase in cement capacities outpacing
Revenues(Rsm) 20,566 23,071 26,199 30,196 36,809
demand growth.
Ebitdamargins(%) 14.7 14.6 10.3 17.2 19.6
Capacity expansions to sustain strong volume growth: JKLCs PreexceptionalPAT(Rsm) 1,115 1,463 91 1,661 2,741
volumes grew at 11% Cagr over the past three years as against 4% ReportedPAT(Rsm) 930 956 91 1,661 2,741
industry Cagr. JKLC plans to expand its cement capacity from 8.65mtpa in PreexceptionalEPS(Rs) 9.5 12.4 0.8 14.1 23.3
end-FY16 to 11.5mtpa by mid-FY18 in the standalone entity and 1.6mtpa Growth(%) (41.9) 31.1 (93.8) 1729.2 65.0
in its 72% subsidiary Udaipur Cement Works. Consolidated grinding IIFLvsconsensus(%) 16.9 (7.9)
capacity will reach 13mtpa by FY18. These expansions are likely to PER(x) 42.7 32.6 524.8 28.7 17.4
sustain double-digit volume growth for JKLC over the next 2-3 years. ROE(%) 8.7 11.1 0.7 11.7 16.8
Focus is to strengthen balance sheet: JKLCs capex programme in the Netdebt/equity(x) 1.0 1.3 1.2 1.0 0.6
current round is nearing the last phase and the company may pause for EV/Ebitda(x) 20.5 19.6 23.9 12.1 8.1
6-8 quarters following the current expansion. Debt reduction will start Price/book(x) 3.7 3.6 3.6 3.2 2.7
from FY17 for the standalone entity and from FY18 at the consolidated EV/tonne(USD) 138 118 110 82 77
level. Source:Company,IIFLResearch.Pricedason11July2016

J Radhakrishnan | radhakrishnan@iiflcap.com Krithika Subramanian | krithika.subramanian@iiflcap.com |

91 22 4646 4653 91 22 46464696
 JK Lakshmi Cement BUY
Institutional Equities

Cost reduction in eastern plants a priority in the near term: For Figure2: StatewisesalesforSirohi(Rajasthan)plants
the near term, the company will focus on reducing costs in the eastern
region plants through WHR plants (7MW by September 2017) and it is Othernorthern
Maharashtra
tying up with private power producers at a lower rate. Overall interest states
6%
cost is likely to decline through annual resetting of rates. JKLC can 33%
expand its cement capacity to 20mtpa in the next five years since
sufficient limestone reserves are available at the existing locations.

Demand growth for the industry is likely to improve going

forward: JKLC expects housing for all, Sagarmala and concrete road
projects to boost volume growth for the industry. It expects 6% volume Gujarat
growth this year for the industry at the all-India level (with low growth 35% Rajasthan/MP
in 1QFY17). JKLC expects industry volume growth of 8% for FY18. The 26%
core work, which involves cement consumption in DMIC, will start going
forward and will boost demand in the areas in which JKLC operates.
Source:Company,IIFLResearch
Figure1: JKLCsclinkerandcementgrindingcapacitytrend
Clinkercapacity Grindingcapacity Figure3: StatewisesalesforDurg(Chhattisgarh)plant
14.0
Chhattisgarh
12.0 21% Odisha
10.0 6%
WestBengal
8.0 5%
4% MadhyaPradesh
6.0 3%
2% Maharashtra
4.0 2%
Jharkhand
2.0
57% Bihar
0.0
FY12 FY13 FY14 FY15 FY16 FY17ii FY18ii Others
Source:Company,IIFLResearch
Source:Company,IIFLResearch

radh ak rishn an@iif lcap. com 2

 Company snapshot JK Lakshmi Cement BUY
Institutional Equities

Background: JKLC, a Hari Shankar Singhania group company, was established in 1982. JKLC has clinker capacity in Sirohi, Rajasthan, and
Durg, Chhattisgarh; grinding units in Rajasthan, Gujarat, Haryana and Chhattisgarh. Current clinker capacity is 6.3mtpa and cement capacity is
8.7mtpa. The company expanded capacity at 16% Cagr over the past four years through a greenfield expansion in Chhattisgarh, debottlenecking
of clinker capacity and addition of split grinding units. JKLC derives sales volume from the northern, western, eastern and central regions. JKLC
has 100% captive power capacity for its northern plants. JKLC sells cement under the JK Lakshmi Cement, Pro+ and Platinum brands.

Management
Region-wise cement vols (%) Capacity and sales volumes
Name Designation - FY16 Capacity(LHS) Salesvolume(LHS)
BharatHariSinghania Chairman East, growth(%)(RHS)
10.0 (%)
North+ (mtonnes)
VinitaSinghania ViceChairman&ManagingDirector 12.0 25.0
UP,46.0
ShailendraChouksey WholetimeDirector 10.0 20.0
8.0 15.0
SABidkar CFO
10.0
6.0
5.0
4.0 0.0
West,
44.0 2.0 (5.0)

0.0 (10.0)
FY10 FY11 FY12 FY13 FY14 FY15 FY16

Assumptions PE chart EV/Ebitda

Y/e31Mar, PE (x) Avg 1sd -1sd
FY14A FY15A FY16ii FY17ii FY18ii EV/Ebitda (x) Avg 1sd -1sd
Parent
Cementvolume(m
5.6 6.0 7.3 8.0 9.2
tonnes) 20.0
376.0
Cementrealisation
3,647.7 3,869.4 3,581.9 3,754.6 3,979.9
(Rspertonne)
282.0 15.0
Cementcost(Rs
(3,112.2) (3,283.0) (3,212.5) (3,109.1) (3,198.4)
pertonne)
188.0 10.0
Source:Companydata,IIFLResearch

94.0 5.0

0.0 0.0
Jun08 Jun10 Jun12 Jun14 Jul16 Jun08 Jun10 Jun12 Jun14 Jul16

radh ak rishn an@iif lcap. com 3

 JK Lakshmi Cement BUY
Institutional Equities

Financial summary
Incomestatementsummary(Rsm) Balancesheetsummary(Rsm)
Y/e31Mar,Parent FY14A FY15A FY16ii FY17ii FY18ii Y/e31Mar,Parent FY14A FY15A FY16ii FY17ii FY18ii
Revenues 20,566 23,071 26,199 30,196 36,809 Cash&cashequivalents 3,741 2,693 2,658 5,621 9,806
Ebitda 3,020 3,369 2,702 5,192 7,227 Inventories 1,024 2,235 2,406 2,560 3,028
Depreciationandamortisation (1,352) (1,119) (1,629) (1,604) (1,844) Receivables 555 705 965 1,112 1,356
Ebit 1,668 2,250 1,073 3,588 5,383 Othercurrentassets 1,776 2,076 2,408 981 981
Nonoperatingincome 443 282 523 523 523 Creditors 4,261 6,154 9,478 10,086 11,932
Financialexpense (772) (907) (1,923) (1,981) (2,251) Othercurrentliabilities 354 395 120 120 120
PBT 1,339 1,624 (327) 2,130 3,655 Netcurrentassets 2,483 1,160 (1,162) 68 3,119
Exceptionals (185) (507) 0 0 0 Fixedassets 24,799 29,440 30,668 32,564 32,220
ReportedPBT 1,154 1,118 (327) 2,130 3,655 Intangibles 0 0 0 0 0
Taxexpense (224) (162) 418 (468) (914) Investments 1,088 1,688 1,465 1,465 1,465
PAT 930 956 91 1,661 2,741 Otherlongtermassets 2,681 2,036 1,850 1,850 1,850
Minorities,Associatesetc. 0 0 0 0 0 Totalnetassets 31,050 34,324 32,822 35,948 38,655
AttributablePAT 930 956 91 1,661 2,741 Borrowings 16,732 19,732 18,621 20,121 20,121
Otherlongtermliabilities 1,287 1,284 867 867 867
Ratioanalysis Shareholders equity 13,032 13,307 13,334 14,961 17,668
Y/e31Mar,Parent FY14A FY15A FY16ii FY17ii FY18ii Totalliabilities 31,050 34,324 32,822 35,948 38,655
Persharedata(Rs)
PreexceptionalEPS 9.5 12.4 0.8 14.1 23.3 Cashflowsummary(Rsm)
DPS 2.0 2.0 0.3 0.3 0.3 Y/e31Mar,Parent FY14A FY15A FY16ii FY17ii FY18ii
BVPS 110.7 113.1 113.3 127.1 150.1 Ebit 1,668 2,250 1,073 3,588 5,383
Growthratios(%) Taxpaid (68) (249) 418 (468) (914)
Revenues 0.1 12.2 13.6 15.3 21.9 Depreciationandamortization 1,352 1,119 1,629 1,604 1,844
Ebitda (29.6) 11.6 (19.8) 92.2 39.2 Networkingcapitalchange (240) 274 2,286 1,734 1,134
EPS (41.9) 31.1 (93.8) 1729.3 65.0 Otheroperatingitems 794 759 (261) 0 0
Profitabilityratios(%) Operatingcashflowbeforeinterest 3,506 4,153 5,145 6,457 7,448
Ebitdamargin 14.7 14.6 10.3 17.2 19.6 Financialexpense (772) (907) (1,923) (1,981) (2,251)
Ebitmargin 8.1 9.8 4.1 11.9 14.6 Nonoperatingincome 443 282 523 523 523
Taxrate 19.4 14.5 127.8 22.0 25.0 Operatingcashflowafterinterest 3,178 3,527 3,745 4,999 5,719
Netprofitmargin 4.5 4.1 0.3 5.5 7.4 Capitalexpenditure (5,046) (4,562) (5,357) (3,500) (1,500)
Returnratios(%) Longterminvestments (137) (379) 223 0 0
ROE 8.7 11.1 0.7 11.7 16.8 Others (731) (2,041) 0 0 0
ROCE 7.2 7.7 4.8 12.0 15.8 Freecashflow (2,736) (3,454) (1,389) 1,499 4,219
Solvencyratios(x) Equityraising 0 0 0 0 0
Netdebtequity 1.0 1.3 1.2 1.0 0.6 Borrowings 2,934 2,679 1,388 1,500 0
NetdebttoEbitda 4.3 5.1 5.9 2.8 1.4 Dividend (340) (274) (34) (34) (34)
Interestcoverage 2.2 2.5 0.6 1.8 2.4 Netchgincashandequivalents (142) (1,049) (35) 2,964 4,185
Source:Companydata,IIFLResearch Source:Companydata,IIFLResearch

radh ak rishn an@iif lcap. com 4

 JK Lakshmi Cement BUY
Institutional Equities
Disclosure : Published in 2016, India Infoline Ltd 2016

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radh ak rishn an@iif lcap. com 5

 JK Lakshmi Cement BUY
Institutional Equities

A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.
(Choose a company from the list on the browser and select the three years period in the price chart).

Name, Qualification and Certification of Research Analyst:J Radhakrishnan(CWA, CFA), Krithika Subramanian(Chartered Accountant)

India Infoline Limited (Formerly India Infoline Distribution Company Limited), CIN No.: U99999MH1996PLC132983, Corporate Office IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel,
Mumbai 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane 400604 Tel: (91-22)
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RA Regn.:- INH000000248

Key to our recommendation structure

BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon.

SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon.

In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We assume the current hurdle rate at
10%, this being the average return on a debt instrument available for investment.

Add - Stock expected to give a return of 0-10% over the hurdle rate, i.e. a positive return of 10%+.

Reduce - Stock expected to return less than the hurdle rate, i.e. return of less than 10%.

Distribution of Ratings: Out of 198 stocks rated in the IIFL coverage universe, 115 have BUY ratings, 8 have SELL ratings, 54 have ADD ratings and 21 have REDUCE ratings.

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analysts views on the likely course of investor sentiment. Whichever valuation method is used there is
a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the companys products. Such
demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain
industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions.
This discussion of valuation methods and risk factors is not comprehensive further information is available upon request.

Date Close price Target price Rating

JKLakshmiCement:3yearpriceandratinghistory (Rs) (Rs)
(Rs) Price TP/Recochangeddate 03 Jun 2014 191 240 BUY
600 19 Aug 2014 277 419 BUY
500 18 Dec 2014 388 494 BUY
400 21 Dec 2015 329 410 BUY
300
200
100
0
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Aug13
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Aug14
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Aug15
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Nov13
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radh ak rishn an@iif lcap. com 6