28 July 2014
1QFY15 Results Update | Sector:
Cement
J K Cement
BSE SENSEX
26,127
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,790
JKCE IN
69.9
26.8/0.4
419/148
-8/91/54
CMP: INR383
TP: INR520
Buy
Financials & Valuations (INR b)
Y/E Mar
2015E 2016E 2017E
37.7
6.0
20.6
92.2
7.9
9.0
18.6
1.5
9.0
45.5
9.2
47.6
131.1
16.7
14.0
8.1
1.3
5.4
53.3
12.3
80.9
70.0
23.8
18.5
4.7
1.0
3.3
Sales
EBITDA
Adj EPS
EPS Gr.
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA
Revenue beat on higher volumes, realizations disappoint:
Net sales grew by 22%
YoY (-3% QoQ) to INR8b (v/s est. of INR7.4b). Cement volumes grew by 21% to
1.74mt (v/s est. 1.53mt). Grey cement volume grew 22% YoY (+1% QoQ) at 1.54mt
(v/s est. of 1.34mt) led by South volumes growing 39% and North growing 15%.
White cement (incl putty) volumes grew 12% YoY to 0.2mt (in-line). Blended
realizations at INR4,616/ton (v/s est. INR4,834) were down 3.4% QoQ. Grey
cement realizations declined 1.6% QoQ to INR3,844/ton (v/s est of INR3,949/ton),
as South realizations declined 4% and North realizations declined 1%. Further,
white cement realizations declined 3% QoQ INR10,685/ton (v/s est. of
INR10,942/ton), impacted by lower contribution of white cement.
Lower realizations and weaker mix impacts profitability:
EBITDA was ~INR985m
(+8% YoY, -38% QoQ) v/s estimate of INR1.05b. Blended EBITDA/ton at
~INR567/ton (v/s est. ~INR687) was impacted by lower realizations, weaker mix
(lower white cement contribution) and higher cost (pet-coke price inflation and
maintenance cost). Grey cement EBITDA/ton was at ~INR327/ton (-INR333/ton
QoQ). Lower depreciation and lower tax boosted PAT to ~INR380m (v/s est.
~INR299m), a growth of 23% YoY.
Brownfield expansion at Rajasthan commenced operations:
3mt brownfield
capacity addition at Rajasthan is now ready, with commissioning of clinker
production in 1QFY15 and cement production to start from August 2014. Further,
UAE plant is fully functional with sales of ~35,000t of till June mainly in GCC region
and East Africa. Sales are likely to pick up from October onwards after the end of
lean period till September and registration of its product in various countries.
Revised estimates, Maintain Buy:
We are revising our EPS estimates for
FY15E/16E by -9%/+5% to factor for a) strong volume growth, b) weaker
realizations, c) lower depreciation and d) lower tax. The stock trades at 8.1xFY16
EPS, 5.4x EV/EBITDA and USD71/ton (blended). Maintain
Buy
with a target price of
INR520 (USD56/ton for Grey cement capacity and 10x FY16E White cement EPS).
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.

J K Cement
Grey Cement volumes grew 22%...
Grey Volume (mt)
13.2
3.5
2.5
4.5 5.7
17.8
1.9
-5.5
Growth(%)
4.9
22.1
White cement posted steady growth
White volume (mt)
42.5
26.3
18.8 0.13 16.9
5.6
0.12 0.12
0.15 0.15 0.16 0.19 0.19 0.17 0.20 0.21 0.21 0.20
30.3
20.8
24.7
Growth(%)
19.0
22.6
12.2 13.2 11.9
-7.4
-0.5
-15.5
1.3 1.2 1.2 1.6 1.5 1.4 1.3 1.5 1.3 1.3 1.3 1.5 1.5
Source: Company, MOSL
Source: Company, MOSL
South witnessed very sharp recovery in 1QFY15…
South Vols (mt)
0.6
0.4
0.2
0.0
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15
Growth (%) - RHS
40
20
0
-20
-40
…while North also witnessed good recovery
North Vols (mt)
1.2
1.0
0.8
0.6
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15
Growth (%) - RHS
20
10
0
-10
Source: Company, MOSL
Source: Company, MOSL
Contribution from white cement business declining…
White
Grey
… impacting blended realizations
Blended Realizations (INR/ton)
Source: Company, MOSL
Source: Company, MOSL
28 July 2014
2

J K Cement
Grey cement realization declines QoQ…
Grey Realizations
…as realizations in both North & South were under pressure
North Realn (INR/Ton)
South Realn (INR/Ton)
Source: Company, MOSL
Source: Company, MOSL
Blended EBITDA/ton declines QoQ/YoY…
Blended EBITDA/Ton
…as grey cement EBITDA/ton under pressure
Grey EBITDA/ton
Source: Company, MOSL
Source: Company, MOSL
Key performance indicators (blended)
INR/Ton
Net realization
RM Cost
Employee Expenses
Power, Oil & Fuel
Freight
Other Expenses
Total Exp
EBITDA
1QFY15
4,616
754
278
1,119
1,022
876
4,049
567
1QFY14
4,571
494
319
1,179
1,007
936
3,935
636
YoY (%)
1.0
52.5
-12.7
-5.1
1.5
-6.4
2.9
-10.8
4QFY14
QoQ (%)
4,778
(3.4)
736
2.3
232
20.1
1,126
-0.7
1,027
-0.4
744
17.7
3,865
4.7
913
-37.8
Source: Company, MOSL
Revised forecast
(INR M)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
37,654
5,958
1,440
20.6
FY15E
Old
36,774
6,471
1,583
22.6
Chg (%)
2.4
-7.9
-9.0
-9.0
Rev
45,509
9,154
3,328
47.6
FY16E
Old
44,087
9,312
3,167
45.3
Chg (%)
3.2
-1.7
5.1
5.1
Source: MOSL
28 July 2014
3

J K Cement
JKCE: Sum of the parts valuation
Grey Cement
White Cement
UAE White Cement
EV (INR m)
Consol Net debt (INR m)
Equity value (INR m)
Equity value (INR/Shr)
Implied EV/Ton (blended)
Implied EV/Ton (Grey)
Implied PE (White)
EV/EBITDA
7
6
5
FY16E
35,474
18,068
5,585
59,127
22,752
36,375
520
84
56
10.2
Source: MOSL
28 July 2014
4

J K Cement
J K 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
Commenced clinker production at greenfield
expansion at Rajasthan, with cement production
expected to start from August 2014.
Valuation and view
Key investment argument
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
is likely to contribute from 2QFY15, would aid
volume growth.
Company's White cement business is a cash cow.
The stable operating income of INR2-2.5b per year
from White cement would render meaningful
cushion to its debt servicing during the capex cycle.
We are revising our EPS estimates for FY15E/16E by -
9%/+5% to factor for a) strong volume growth, b)
weaker realizations, c) lower depreciation and d)
lower tax.
The stock trades at 8.1xFY16 EPS, 5.4x EV/EBITDA
and USD71/ton (blended).
Maintain
Buy
with a target price of INR520
(USD56/ton for Grey cement capacity and 10x FY16E
White cement EPS).
Sector view
Post weak pricing environment during monsoon,
cement prices and demand are expected to pick-up
post monsoon.
Structural increase in cost base (both capex and
opex) would necessitate higher cement prices.
Revival in cement demand would be key catalyst for
the stock performance.
Comparative valuations
JKCE
P/E (x)
P/BV (x)
EV/Ton ($)
EV/EBITDA (x)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
18.6
8.1
1.5
1.3
77
71
9.0
5.4
EPS: MOSL forecast v/s consensus (INR)
JKLC
15.0
10.1
3.3
2.5
106
101
8.5
6.4
PRSC
-21.2
171.5
3.5
3.4
143
126
44.2
12.3
FY15
FY16
MOSL
Forecast
20.6
47.6
Consensus
Forecast
17.9
33.5
Variation
(%)
15.4
42.0
Target price and recommendation
Current
Price (INR)
383
Target
Price (INR)
520
Upside
(%)
35.8
Reco
Buy
Stock performance (1-year)
Shareholding pattern (%)
Mar-14
Promoter
Domestic Inst
Foreign
Others
66.9
9.6
12.4
11.1
Dec-13
66.9
9.8
12.1
11.1
Mar-13
66.7
10.1
10.9
12.3
Notes: FII includes depository receipts
28 July 2014
5

J K Cement
Financials and valuations
28 July 2014
6

J K Cement
NOTES
28 July 2014
7

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J K Cement
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JK Cement
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