Q3FY18 RESULT UPDATE

RETAIL EQUITY RESEARCH

JK Lakshmi Cement Ltd Accumulate
Cement Rating as per Midcap 12 Months investment period
BSE CODE: 500380 NSE CODE: JKLAKSHMI
CMP Rs. 402 TARGET Rs. 447 RETURN 11%
Bloomberg CODE: JKLC:IN SENSEX: 34,195

7th February, 2018

Company Data
Strong revenue growth, but fuel cost surge impact margins Market Cap (cr) Rs.4,730
JK Lakshmi Cement (JKLC) is part of JK group mainly focused in North, West
Enterprise Value (cr) Rs.6,236
and Eastern regions of India with a consolidated capacity of 12.5MT (FY17).
 JKLC reported a strong revenue growth of 24.8% for Q3FY18 aided by Outstanding Shares (cr) 11.8
healthy growth in volumes at 15% YoY and 8% YoY growth in realisation. Free Float 54%
 EBITDA grew by 14%YoY, however EBITDA margin declined by 100bps Dividend Yield 0.18%
YoY to 11.3% due to steep increase in fuel and freight cost. 52 week high Rs.535
 JKLC commissioned 7.5MW WHR in Q3FY18 and is commissioning 20MW 52 week low Rs.375
thermal by 3QFY19, expect a cost saving of ~Rs200/ton in its East plant. 6m average volume (cr) 0.02
 We raised our FY18 revenue estimates by ~3% but reduced FY18/19 Beta 0.87
EBITDA margins by 140bps/190bps to factor in sharp increase in fuel cost.
Face value Rs.5.0
 We value JKLC at EV/EBITDA of 12x on FY19E for standalone and 10x for
Shareholding (%) Q1FY18 Q2FY18 Q3FY18
UCWL subsidiary to arrive at a Target Price of Rs447.
Promoters 45.94 45.94 45.94
FII’s 10.34 9.77 8.72
Strong revenue growth aided by healthy volume and realisation
JKLC reported a strong revenue growth of 25% YoY led by both volume (15%YoY) MFs/Insti 22.29 18.99 19.79
and realisation (8%YoY) growth. The change in billing method from ex-factory to Public 16.47 16.77 16.93
FoR basis post GST supported realisation while volume growth was supported by Others 4.96 8.53 8.62
ramp up of recently commissioned capacities. The cement price cap set by the Total 100.00 100.00 100.00
state government in Chhattisgarh (60% of total sales in East) was removed and 3 month 6 month 1 Year
Price Performance
will support realisation in East in the coming quarters. Management expects the -7.5% -9.8% 3.4%
Absolute Return
demand will be good in the coming two quarters (pre-monsoon). We expect
Absolute Sensex -0.4% 3.8% 18.9%
further improvement in realisation when the demand pick up supported by
various GoI initiatives for housing & infra and no additional significant capacity Relative Return* -7.2% -13.6% -15.5%
additions in the region. We factor revenue growth of 15% CAGR over FY17-19E *over or under performance to benchmark index

Surge in fuel cost impact margins... JKLC BSE Restated

700
JKLC reported an EBITDA growth of 14% YoY in Q3FY18. However, EBITDA
margin was impacted by 100bps due to sharp increase in pet coke prices and 400
freight cost. The fuel cost got further affected by the recent SC ban on pet coke use
in Rajasthan, Haryana and Uttar Pradesh from November 2017 (SC later lifted the 100
ban in December) in a bid to rein in high levels of pollution. The cost of coal is Feb 17 May 17 Aug 17 Nov 17 Feb 18
~20% higher than cost of pet coke. Power & Fuel cost per Ton had increased by
38% YoY to Rs1,016. The average pet coke price was at ~Rs7500/ton during
Q3FY18 Vs ~Rs6,500/ton in Q2FY18 and is currently at ~Rs8,000/ton which will Standalone (Rs. cr) FY17A FY18E FY19E
have an impact on margins in the coming quarters also. The freight cost was Sales 2,910 3,497 3,834
impacted by increase in diesel prices and partially by change in billing from ex- Growth (%) 11.1 20.2 9.6
factory to FoR basis post GST. We downgrade our margin expectation from EBITDA 365 429 531
13.7%/15.7% to 12.3%/13.8% for FY18E/FY19E to factor in increase in fuel cost. Margin (%) 12.6 12.3 13.8
Focus on maintaining cost efficiency...... PAT Adj 81.1 81.2 160.3
JKLC has completed 7.5MW WHR (Waste Heat recovery) during the quarter and
Growth (%) 1,192.0 0.03 97.5
is commissioning 20MW Thermal power plant by 3QFY19E at its east plant. These
Adj.EPS 6.9 6.9 13.6
initiatives will give a cost saving of ~Rs200 per ton in East plant as per
management. The ramp up in recently commissioned plants coupled with savings Growth (%) 1,192.0 0.03 97.5
in logistics on account of GST implementation will improve freight cost. P/E 58.3 58.3 29.5
Valuations P/B 3.4 3.3 3.0
We expect demand to pick up in the coming quarters (pre-monsoon) which EV/EBITDA 16.7 14.4 11.1
coupled with the ramp up in recently commissioned capacities bodes well for RoE (%) 6.0 5.8 10.7
JKLC. The margins will have an impact due to recent surge in fuel cost. We value D/E 1.6 1.6 1.3
JKLC at EV/EBITDA of 12x on FY19E for standalone and 10x for UCWL and
arrive at a target price of Rs447 with Accumulate rating. Vincent Andrews
Analyst
 Quarterly Financials (Standalone)
Profit & Loss Account

(Rs cr) Q3FY18 Q3FY17 YoY Growth (%) Q2FY18 QoQ Growth (%)
Sales 837.4 670.9 24.8% 776.7 7.8%
EBITDA 94.3 82.7 14.1% 95.4 -1.2%
Margin% 11.3% 12.3% (100bps) 12.3% (100bps)
Depreciation 44.8 44.3 1.1% 44.7 0.3%
EBIT 49.5 38.3 29.2% 50.8 -2.4%
Interest 51.4 48.6 5.8% 48.9 5.2%
Other Income 14.6 15.2 -3.8% 16.9 -13.6%
Exceptional Items 0.0 0.0 0.0% 0.0 0.0%
PBT 12.7 4.9 158.5% 18.8 -32.3%
Tax 4.1 -2.7 -254.1% 5.6 -25.9%
Reported PAT 8.6 7.6 13.0% 13.2 -35.1%
Adjustment -0.2 0.1 -0.2 0.0%
Adj PAT 8.4 7.7 9.1% 13.0 -35.6%
No. of shares (cr) 11.8 11.8 0.0% 11.8 0.0%
EPS (Rs) 0.7 0.7 9.1% 1.1 -35.6%

Per-tonne Analysis

(Rs cr) Q3FY18 Q3FY17 YoY Growth (%) Q2FY18 QoQ Growth (%)
Overall Cement Volumes (MnT) 2.11 1.83 15.4% 1.89 11.6%
Raw Materials 881 837 5.3% 873 0.9%
Employee expenses 261 296 -11.9% 318 -18.0%
Power &Fuel 972 826 17.6% 950 2.3%
Freight 1025 928 10.5% 1082 -5.3%
Other expenses 385 331 16.3% 381 1.0%
Total expenses 3,523 3,218 9.5% 3,604 -2.2%
Realisation incl.RMC 3,971 3,670 8.2% 4,109 -3.4%
EBITDA 447 452 -1.1% 505 -11.4%

Change in estimates

Old estimates New estimates Change %

Year / Rs cr FY18E FY19E FY18E FY19E FY18E FY19E
Revenue 3,409 3,811 3,497 3,834 2.6% 0.61%
EBITDA 467 598 429 531 -8.1% -11.2%
Margins (%) 13.7 15.7 12.3 13.8 (140bps) (190bps)
PAT 129.4 214 81.2 160.3 -37.3% -25.1%
EPS 11.0 18.2 6.9 13.6 -37.3% -25.2%
 Standalone Financials

Profit & Loss Account Balance Sheet

Y.E March (Rscr) FY15A FY16A FY17A FY18E FY19E Y.E March (Rscr) FY15A FY16A FY17A FY18E FY19E
Sales 2,307 2,620 2,910 3,497 3,834 Cash 15 12 9 88 23
% change 12.2 13.6 11.1 20.2 9.6 Accounts Receivable 70 96 90 129 121
EBITDA 349 270 365 429 531 Inventories 223 241 278 308 322
% change 15.7 (22.7) 35.3 17.5 23.7 Other Cur. Assets 464 426 367 417 436
Depreciation 110.7 161.9 172.4 175.3 181.8 Investments 423 401 809 700 900
EBIT 237.6 107.3 193.0 253.9 349.2 Gross Fixed Assets 4,088 4,449 4,664 4,814 5,014
Interest 90.7 192.3 188.7 200.3 196.7 Net Fixed Assets 2,581 2,782 2,825 2,799 2,818
Other Income 28.2 60.3 69.8 61.4 76.5 CWIP 361 283 205 250 100
PBT 111.8 (35.5) 73.3 115.0 229.0 Intangible Assets 2 1 2 2 2
% change (3.1) (131.8) (306.6) 56.7 99.2 Def. Tax (Net) (128) (87) - - -
Tax 16.2 (41.8) (7.8) 33.8 68.7 Other Assets - - - - -
Tax Rate (%) 14.5% 117.7% -10.6% 29.4% 30.0% Total Assets 4,012 4,155 4,583 4,693 4,720
Reported PAT 95.6 6.3 81.1 81.2 160.3 Current Liabilities 898 948 1,061 1,070 1,102
Adj.* - - - - - Provisions 47 21 30 38 42
Adj. PAT 95.6 6.3 81.1 81.2 160.3 Debt Funds 1,670 1,694 1,966 2,026 1,896
% change 2.8 (93.4) 1,192.0 0.03 97.5 Other Liabilities 66 159 144 124 114
No. of shares 11.8 11.8 11.8 11.8 11.8 Equity Capital 59 59 59 59 59
Adj EPS (Rs) 8.1 0.5 6.9 6.9 13.6 Reserves & Surplus 1,272 1,275 1,323 1,376 1,508
% change 2.8 (93.4) 1,192.0 0.0 97.5 Shareholder’s Fund 1,331 1,333 1,382 1,435 1,566
DPS (Rs) 2.4 0.3 0.9 2.4 2.4 Total Liabilities 4,012 4,155 4,583 4,693 4,720
BVPS (Rs) 113 113 117 122 133

Cash flow Ratios

Y.E March (Rscr) FY15A FY16A FY17A FY18E FY19E Y.E March (Rscr) FY15A FY16A FY17A FY18E FY19E
Net inc. + Depn. 208 169 254 256 342 Profitab. & Return
Non-cash adj. -22 -51 -55 0 0 EBITDA margin (%) 15.1 10.3 12.6 12.3 13.8
Other adjustments 80 145 179 200 197 EBIT margin (%) 10.3 4.1 6.6 7.3 9.1
Changes in W.C 86.7 83.9 (12.7) (103.7) 11.3 Net profit mgn.(%) 4.1 0.2 2.8 2.3 4.2
C.F.O 352 347 363 353 550 ROE (%) 7.3 0.5 6.0 5.8 10.7
Capital exp. (456) (200) (125) (195) (50) ROCE (%) 4.9 6.6 6.5 8.3 10.3
Change in inv. 47 71 (293) 109 (200) W.C & Liquidity
Other invest.CF 3 3 2 - - Receivables (days) 10.0 11.6 11.7 11.4 11.9
C.F - investing (406) (125) (416) (86) (250) Inventory (days) 101.7 122.3 124.1 133.0 129.3
Issue of equity - - - - - Payables (days) 341.5 366.9 364.1 378.2 363.5
Issue/repay debt 61 (197) 54 (160) (337) Current ratio (x) 0.8 0.8 0.7 0.9 0.8
Dividends paid (27) (28) (4) (28) (28) Quick ratio (x) 0.1 0.1 0.1 0.1 0.1
Other finance.CF - - - - - Turnover &Levg.
C.F - Financing 34 (225) 50 (189) (365) Gross asset T.O (x) 0.7 0.6 0.6 0.7 0.8
Chg. in cash (21) (4) (3) 79 (65) Total asset T.O (x) 0.6 0.6 0.7 0.8 0.8
Closing cash 15 12 9 88 23 Int. covge. ratio (x) 2.6 0.6 1.0 1.3 1.8
Adj. debt/equity (x) 1.4 1.4 1.6 1.6 1.3
Valuation ratios
EV/Sales (x) 2.7 2.4 2.1 1.8 1.5
EV/EBITDA (x) 17.7 23.1 16.7 14.4 11.1
P/E (x) 49.5 753.2 58.3 58.3 29.5
P/BV (x) 3.6 3.5 3.4 3.3 3.0
 Recommendation Summary (last 3 years) Dates Rating Target
21-June-2017* Buy 614
700
17-Aug-2017 Buy 540
600 07-Feb-2018 Accumulate 447
500
400
300
200
100
0
Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18

Source: Bloomberg, Geojit Research *Initiating Coverage

Investment Rating Criteria

Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is above 10%. Buy - Upside is above 15%.
Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%.
Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%.
Reduce/Sell - Downside is more than 0%.
To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and
‘Reduce’ as Sell.
The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is
possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating.
For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

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Digitally signed by VINCENT K A

VINCENT K A
DN: c=IN, o=GEOJIT FINANCIAL SERVICES LTD,
postalCode=682024, st=Kerala,
2.5.4.20=6ae30d083d523630c71071368f2205dd22201d69f3
32e9d96db4686de0cf567b, cn=VINCENT K A
Date: 2018.02.07 13:43:57 +05'30'