6 February 2013
3QFY13 Results Update |
Sector: Cement
JK Cement
BSE Sensex
19,640
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
5,959
JKCE IN
69.9
22.2/0.4
370/123
-5/22/119
CMP: INR317
TP: INR580
Buy
Valuation summary (INR b)
Y/E March
2013E 2014E 2015E
Sales
30.8 37.1 47.9
EBITDA
6.2
8.2 11.2
NP
2.4
3.1
4.3
Adj EPS (INR) 33.8 43.8 62.1
EPS Gr. (%)
31.7 29.6 41.9
BV/Sh. (INR) 245.1 281.8 335.7
RoE (%)
14.6 16.6 19.7
RoCE (%)
17.1 17.3 19.3
Payout (%)
18.9 15.9 11.2
Valuations
P/E (x)
9.4
7.2
5.1
P/BV (x)
1.3
1.1
0.9
EV/EBITDA (x) 4.6
4.2
4.2
EV/Ton (USD)
67
75
75
Net sales improved by 11.7% YoY (-3.6% QoQ) to INR6.7b, while EBITDA stood
at INR1.3b (+11.8% YoY, 3.2% QoQ) and margin at 19.5% (+1.3pp QoQ, 0.1pp
YoY). PAT was at INR544m (+25% YoY, 0.5% QoQ), moderated by higher interest
expense, which includes a forex loss of ~INR37m and interest on sales tax
liability of ~INR20m.
Grey cement volumes grew marginally by 1.9% YoY (-8% QoQ) to 1.3MT, while
White cement (including Putty) continues a healthy growth to 0.19mt (+40%
YoY, 20% QoQ). Grey cement realizations stood at INR3,782/ton (down INR189/
ton QoQ), while blended White realizations (including Putty) were up by
INR476/ton QoQ to INR11,099/ton.
Blended realizations were up 7.1% YoY/2.9% QoQ, led by (1) uptick in White
cement realizations and (2) higher revenue mix from White cement (31%
v/s 24% in 2QFY13).
Grey cement EBITDA/ton deteriorated by INR49 YoY (-INR11 QoQ) to INR632.
This is largely attributable to (1) QoQ decline in realizations, (2) higher freight
cost and (3) negative operating leverage. EBITDA/ton at North India plants
stood at INR537, while South plants enjoyed profitability of INR861/ton.
White cement (incl Putty) EBITDA/ton improved INR182 QoQ to INR2,909.
We are upgrading EPS estimates for FY13E/14E/15E by 10/2/3% to INR33.8/
43.8/62.1 to factor: (1) lower volume growth in Grey cement business of 10%
in FY13E (v/s 13% earlier) and 8%/10% for FY14E/15E and (2) higher realizations
in White cement business, with YoY increase of ~INR1,900/ton in FY13E (v/s
INR1,300/ton earlier). This translates into an SOTP upgrade of ~4% to INR580.
JKCE trades at 4.2x FY15E EBITDA and USD75/ton. Our SOTP-based target price
is INR580, which offers 83% upside. Maintain
Buy.
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +9122 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
1

JK Cement
Healthy growth in White cement segment drove sales; Grey cement
witnessed flattish YoY volume growth
Grey cement volumes grew marginally by 1.9% YoY (-8% QoQ) to 1.3MT, while
White cement (including Putty) continues a healthy growth to 0.19mt (+40% YoY,
20% QoQ).
Based on regional volume mix, South India plants operated at 49% utilization in
3QFY13, while North operated at 79%.
Grey cement realizations stood at INR3,782/ton (down INR189/ton QoQ), while
blended White realizations (including Putty) were up by INR476/ton QoQ to
INR11,099/ton.
Average realizations at North plants stood at INR3,602/ton, while South enjoyed
realizations of INR4,211/ton. Blended realizations were up 7.1% YoY/2.9% QoQ,
led by (1) uptick in White cement realizations and (2) higher revenue mix from
White cement (31% v/s 24% in 2QFY13).
Net sales improved by 11.7% YoY (-3.6% QoQ) to INR6.7b.
Marginal YoY growth in Grey cement volume
White cement maintained robust growth
Source: Company, MOSL
Net sales contribution by White cement up significantly (%)
Source: Company, MOSL
6 February 2013
2

JK Cement
Average realizations trend (Grey cement) INR/ton
Average realizations trend (White cement incl. Putty) INR/ton
Source: Company, MOSL
Higher freight, negative operating leverage dent profitability despite
realizations being ahead of estimates
EBITDA stood at INR1.3b (+11.8% YoY, 3.2% QoQ), while margin was at 19.5% (+1.3pp
QoQ, 0.1pp YoY).
Grey cement EBITDA/ton deteriorated by INR49 YoY (-INR11 QoQ) to INR632. This
is largely attributable to (1) QoQ decline in realizations, (2) higher freight cost and
(3) negative operating leverage. EBITDA/ton at North plants stood at INR537, while
South plants enjoyed profitability of INR861/ton.
White cement EBITDA/ton improved INR182 QoQ to INR2,909.
Higher contribution from White cement business (41% EBITDA mix v/s 33% in
2QFY13), with superior profitability led to sequential uptick in profitability, despite
a decline in EBITDA/ton in Grey cement business.
PAT at INR544m (+25% YoY, 0.5% QoQ) was moderated by higher interest expense,
which includes a forex loss of ~INR37m and interest on sales tax liability of ~INR20m.
Decline in EBITDA/ton in Grey cement business (INR)
Steady uptick in profitability in White cement segment
Source: Company, MOSL
6 February 2013
3

JK Cement
Upgrading estimates
We are upgrading EPS estimates for FY13E/14E/15E by 10/2/3% to INR33.8/43.8/62.1
to factor: (1) lower volume growth in Grey cement business of 10% in FY13E (v/s
13% earlier) and 8%/10% for FY14E/15E and (2) higher realizations in White cement
business, with YoY increase of ~INR1,900/ton in FY13E (v/s INR1,300/ton earlier).
This translates into an SOTP upgrade of ~4% to INR580.
Revised forecast (INR m)
Rev
6.3
30,797
6,201
2,363
33.8
FY13E
Old Chg (%)
6.4
-2.0
30,648
0.5
5,874
5.6
2,139
10.4
30.6
10.4
Rev
6.9
37,097
8,170
3,062
43.8
FY14E
Old Chg (%)
7.2
-3.6
37,534
-1.2
8,068
1.3
2,995
2.2
42.8
2.2
FY15E
Rev
Old Chg (%)
7.9
8.1
-3.4
47,927 48,300
-0.8
11,175 10,983
1.7
4,346
4,218
3.0
62.1
60.3
3.0
Source: Company, MOSL
Volumes (mt)
Net Sales
EBITDA
Net Profit
EPS (INR)
Valuation and view
JKCE has a favorable market mix, with North and West India accounting for ~70%
of dispatches. It has no exposure to the underperforming Andhra Pradesh market.
Its North India plants are operating at over 90% capacity and ongoing brownfield
capacity expansion, which is likely to be completed by 2Q/3QFY15, would aid
volume growth.
Company's White cement business is a cash cow. The stable operating income of
INR2.5b-3b per year from White cement would render meaningful cushion to its
debt servicing during the capex cycle.
We estimate 26% revenue CAGR over FY13E-15E and expect an uptick in Grey
cement profitability with (1) increasing contribution from new plants and
(2) improving operating leverage.
JKCE trades at 4.2x FY15E EBITDA and USD75/ton. Our SOTP-based target price is
INR580, which offers 83% upside. Maintain
Buy.
6 February 2013
4

JK Cement
JK Cement: an investment profile
Company description
JKCE is one of India's leading cement producers, with
7.5mtpa of gray cement capacity -4.5mtpa in the North
(Rajasthan) and 3mtpa in the South (Karnataka). It is the
second largest white cement manufacturer in India, with
a capacity of 0.4mtpa (0.6mtpa by FY14). Its ongoing
3mtpa split grinding expansion in the North would take
its gray cement capacity to 10.5mtpa by FY15. JKCE is also
expanding its international footprint through a 0.6mtpa
Greenfield white cement plant in UAE to address rising
international demand.
Recent development
Planning to raise up to INR2b through QIB issue for
funding its long-term growth plan, including capital
expenditure.
Valuation and view
We are upgrading EPS estimates for FY13E/14E/15E
by 10/2/3% to INR33.8/43.8/62.1 to factor: (1) lower
volume growth in Grey cement business of 10% in
FY13E (v/s 13% earlier) and 8%/10% for FY14E/15E
and (2) higher realizations in White cement
business, with YoY increase of ~INR1,900/ton in FY13E
(v/s INR1,300/ton earlier). This translates into an
SOTP upgrade of ~4% to INR580.
JKCE trades at 4.2x FY15E EBITDA and USD75/ton.
Buy.
Key investment argument
JK Cement (JKCE) has a favorable market mix, with
North and West India accounting for ~70% of
dispatches. It has no exposure to the
underperforming Andhra Pradesh market.
Its North India plants are operating at over 90%
capacity and ongoing brownfield capacity expansion,
which is likely to be completed by 2Q/3QFY15, would
aid volume growth.
Its white cement business is a cash cow. The stable
operating income of INR2.5b-3b per year from white
cement would render meaningful cushion to JKCE's
debt servicing during the capex cycle.
Sector view
We have already witnessed bottom-of-the-cycle
utilization & profitability, and it should gradually
improve hereon given sustainable demand drivers.
Structural increase in cost base would necessitate
higher cement prices.
Revival in cement demand would be key catalyst for
the stock performance.
Comparative valuations
JK
Cement
9.4
7.2
1.3
1.1
67
75
4.6
4.2
India
Cements
9.4
7.2
1.3
1.1
67
75
4.6
4.2
Shree
Cement
3.6
5.0
0.9
0.7
65
48
2.9
3.4
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
33.8
43.8
Consensus
Forecast
34.7
46.0
Variation
(%)
-2.6
-4.8
P/E (x)
FY13E
FY14E
P/BV (x)
FY13E
FY14E
EV/Ton ($)
FY13E
FY14E
EV/EBITDA (x) FY13E
FY14E
FY13
FY14
Target price and recommendation
Current
Price (INR)
317
Target
Price (INR)
580
Upside
(%)
83
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Dec-12
Promoter
Domestic Inst
Foreign
Others
6 February 2013
66.7
10.3
10.9
12.2
Sep-12
66.6
9.1
12.4
11.9
Dec-11
66.2
7.0
12.8
13.9
5

JK Cement
Financials and Valuation
6 February 2013
6

JK Cement
N O T E S
6 February 2013
7

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JK Cement
No
No
No
Yes
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