Investment Strategy: Buy JK Lakshmi Cement Ltd.- Price Target: Rs 158

We are recommending a Buy on JK Lakshmi cement with a price target of Rs.158.

Investment Highlights


Topline up by 30.20%: Net sales for the Q1FY10 increased by 30.20% to
Rs. 350.81 Cr compared to Rs. 269.43Cr during the corresponding quarter
previous year. This is on the back of 11% increase in production and 14 %
growth in despatches.


Net profit increased by 102.87%: The company posted a robust growth
in its profit to Rs.78.49 Crores for Q1FY10 an increase of 103% (YoY).
This is mainly on the back of higher realizations.


Increase in operating margin: The operating margin of the company
improved to 34% in Q1FY10 from 24% in Q1FY09. Lower fuel, power cost
and higher realizations resulted in improved operating margins.


Full year performance: For the full year FY09 the company saw a 10%
growth in its topline to Rs.1223.90crores (YoY). The bottomline of the
company saw a decline of 25% to Rs.175.27 Crores due to increase in
input cost particularly in fuel cost.


Capacity addition to drive volumes: The production capacity of the
company increased from 3.65 million tpa to 4.75 million tpa in FY09, an
increase of over 30%. The full capacity will be on stream during FY10,
which will add to the higher volumes.


Greenfield expansion: The company is setting up a green field cement
plant at durg in the state of chattisgarh, with an annual capacity of 2.7
million tonnes and is expected to be commissioned by 2011.


Captive power plant to save cost: The company is setting up a waste
heat recovery power plant with an estimated outlay of Rs. 125 crore. The
project is aimed to generate 12 mw of power and it will be commissioned
by March 2011.Further the company is also planning to set up 18 mw
power plant at sirohi. Both the above-mentioned capacity along with
existing capacity will take the total capacity of the company to 66mw.This
will minimize cost for the company.
Valuation

We expect a stronger topline and bottomline growth on the back of improved
demand, higher price realization, capacity expansion and savings from captive
power plant. At the CMP of Rs. 131.55, JK Lakshmi is trading at 3.03x its TTM
earnings. We recommend a BUY on the stock with a (3-6 month) price target of
Rs.158.

Industry: Cement
Price Data
Current Price (Rs) 131.55
52 wk range (Rs) 133.00-31.00
Stock Data
Mkt Cap (Rs Cr) 804.82
No. of shares o/s(Cr) 6.118
Free float (%) 54.49

Key Indicators
TTM EPS (Rs) 43.39
PAT Margin (%) 22.37%
Code
NSE JKLAKSHMI
BSE 500380
Reuters JKCR.BO
Bloomberg JKLC.IN