- JK Laskhmi Q4 FY14 revenues grew by ~21%yoy to Rs6.5bn - above our expectations of Rs5.4bn led by strong growth in volumes and realization. Volume growth was better than our estimate on account of 1.5mtpa grinding unit commencing operation during the quarter.
- Realization improved by 7% qoq to Rs3800/ton; EBITDA margin sequentially improved by 467bps.
- PAT grew 58% on back of lower depreciation (down 37%) on back of change in policy
- Maintain Buy with a revised 9-month price target of Rs215
|(Rs mn)||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
|Power and fuel costs||1,141||884||29.1||1,044||9.3|
|OPM (%)||17.3||17.8||(49) bps||12.6||467 bps|
|Effective tax rate (%)||17.6||2.7||20.6|
|Adj. PAT margin (%)||11.0||9.3||174 bps||2.8||821 bps|
|Extra ordinary items||185||163||13.3||-||-|
Improved volume and realization boost revenues
JK Lakshmi revenues stood at Rs6.5bn, above our estimate of Rs5.4bn. The outperformance was largely due to higher realization; up 7% sequentially against expectations of 5% qoq. The realization was higher as shutdown of a Binani Cement plant resulted in a supply crunch in the Northern region. Volume growth of 20% yoy was due to commencement of 1.5mtpa grinding unit.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
|Power and fuel costs||17.6||16.5||110||20.8||(317)|
Margins boosted by higher realizations, savings in personnel/power cost
Operating margins for JKLCE expanded by 467bps qoq as against our estimate of 400bps. OPM was better than our estimate on back of a) decrease in Staff cost, which stood at 192/ton at 8 quarter low and b) reduction in power and freight cost. Jump in material cost (1154/ton as against 987/ton qoq basis) could be due to higher clinker purchase in order to run the newly operational grinding unit. Change in depreciation policy led to a 37% savings.
Compelling valuations; maintain Buy
Cement sector has entered into a phase of consolidation. The recent concluded deals like 1) Ambuja Cements buying Holcim India stake in ACC and 2) Ultratech buying JP Associates Gujarat unit signifies larger players opting for inorganic growth. In addition, announcement of new Greenfield projects have reduced considerably too. Industry in the recent past has suffered as economy had slowed down. However, lesser number of new units as well as buyout of rival units will reduce supply surplus over the medium term. We prefer companies with significant capacity in northern, western and eastern region as it is likely to see minimal surplus in FY15/16 (north and east may run into deficit if demand picks up. The sector could see a revival in demand and improvement in realisation post H1 FY15 on back of a) resumption of investment cycle b) softening of interest rate and c) demand revival in northern, eastern and western regions limiting the surplus to central and southern zones.
JKLCE is enhancing its capacity from current 6.6mtpa to ~11.3mtpa by end of FY15; this would translate into 16% volume CAGR over FY13-16. Expansion plan includes a) 2.7mtpa plant at Durg, Chhattisgarh by end of FY14, and b) 1.5mtpa grinding unit at Haryana coming up in Q2 FY15 to boost blending ratio. Post Durg expansion, each region (northern, western and eastern) is likely to account for one third of the sales. This could possibly lead to higher realization for JKLCE. We increase our 9-month target from Rs215, valuing JKLCE at 10x FY16 EPS of Rs21.5.
|Y/e 31 Mar (Rs m)||FY13||FY14E||FY15E||FY16E|
|Yoy growth (%)||19.6||0.1||18.0||24.1|
|Yoy growth (%)||76.7||(41.9)||33.0||70.4|