JK Lakshmi Cement CMP: INR368 TP: INR427
Transcription
JK Lakshmi Cement CMP: INR368 TP: INR427
31 October 2014 2QFY15 Results Update | Sector: Cement JK Lakshmi Cement BSE SENSEX 27,866 Bloomberg S&P CNX 8,322 JKLC IN CMP: INR368 TP: INR427 Buy Revenue in line as strong volume negated by weak realizations: JK Lakshmi Cement’s (JKLC) 2QFY15 revenue grew by ~27.6% YoY to ~INR5.7b (v/s est. M.Cap. (INR b)/(USDb) 43.2/0.7 INR5.6b), led by strong volume growth. Cement volumes grew 13% YoY (+1% QoQ) 52-Week Range (INR) 383/64 to 1.46mt (v/s est. 1.4mt), while realizations declined ~5.7% QoQ (+13% YoY) to INR3,931/t (v/s est. ~INR4,020). Price moderation in north during August and 1, 6, 12 Rel. Per (%) -3/194/412 September led to sequential decline in realizations in 2QFY15. Financials & Valuation (INR Million) Cost savings offset lower utilization; EBITDA/t up 40% YoY: EBITDA grew by ~58% YoY (-21% QoQ) to ~INR892m (v/s est. INR846m), translating into margin of 15.6% Y/E MAR 2015E 2016E 2017E (-3.3pp QoQ, +3.1pp YoY). EBITDA/ton stood at ~INR612 (v/s est. ~INR608), Net Sales 25,865 33,471 40,791 declined ~INR176/t QoQ (+INR176/t YoY). Higher volume-led operating leverage EBITDA 12,606 17,162 21,804 resulted in cost/ton to be lower-than-estimate and moderated 2% QoQ (+9% YoY). AdjEPS (INR) 19.8 26.6 45.2 Adj PAT grew ~240% YoY (-35% QoQ) to ~INR350m (v/s est ~INR312m). Gr.(%) 115.5 34.8 69.7 RoE (%) 16.9 19.7 27.0 Other updates: The mother plant at Durg (clinker capacity 1.5mt and grinding capacity of 1.7mt) is set to commence operations in 4QFY15, while the Orissa split RoCE (%) 12.2 17.0 24.8 grinding unit (1mt) is yet to get the approval from Supreme Court (wildlife P/E (x) 18.2 13.5 8.0 committee PIL) and is likely to commence operations by Mar 2016. Surat grinding P/BV (x) 2.9 2.5 1.9 unit (0.7mt) has received the environment clearance and is expected to commence EV/EBITDA 11.4 6.9 4.4 operations by 3QFY16. The next leg of capex plan will be evaluated after Durg ( ) EV/Ton(USD) 109 86 77 plant stabilizes over next two years. Raise FY15E/16E EPS 14.5%/8.9%: We revise (a) FY15E/16E volume growth estimates to 11%/18% (v/s earlier 10%/15%), (b) realization estimates of FY15E/16E to INR24 and INR20 per bag respectively (v/s earlier INR27 and INR15 per bag), (c) lower depreciation and interest cost for FY15E due to phasing out of Durg capacity commencement till Mar 2016 and (d) lower tax rates (MAT credit). It translates into 14.5%/8.9% upgrade in FY15E/16E EPS and a target price of INR427 (USD100 EV/t and implied FY16E EV/EBITDA of 8x). Maintain Buy, 16% upside. Equity Shares (m) 117.7 Jinesh Gandhi ([email protected]); +91 22 3982 5416 Sandipan Pal ([email protected]); +91 22 3982 5436 Investors are advised to refer through disclosures made at the end of the Research Report. J K Lakshmi Cement Revenue in line as strong volume negated by weak realizations JK Lakshmi Cement (JKLC)’s 2QFY15 revenue grew by ~27.6% YoY to ~INR5.7b (v/s est INR5.6b), led by strong volume growth. Cement volumes grew 13% YoY (+1% QoQ) to 1.46mt (v/s est 1.4mt), while realizations declined ~5.7% QoQ (+13% YoY) to INR3,931/ton (v/s est ~INR4,020). Price moderation in northern market during August and September 2014 and higher clinker mix ( % v/s 13% QoQ) were attributable to sequential decline on realizations in 2QFY15. Exhibit 1: Volume growth maintained strengths Volume (mt) 13 3,745 1QFY14 3,931 3,744 4QFY13 2QFY15 3,949 3QFY13 4,170 4,075 2QFY13 1QFY15 3,837 1QFY13 3,809 3,707 4QFY12 3,539 3,582 3QFY12 4QFY14 3,134 2QFY12 3QFY14 3,467 1QFY12 3,482 3,269 4QFY11 Source: Company, MOSL 2QFY14 2,920 1QFY14 3QFY11 4QFY13 1.46 1.43 3QFY13 1.44 1.25 2QFY13 2QFY15 1.21 1QFY13 1QFY15 1.39 4QFY12 1.70 1.42 3QFY12 4QFY14 1.23 2QFY12 1.42 1.13 1QFY12 3QFY14 1.13 -12 1.22 1.26 1 4QFY11 2 19 18 7 1.08 7 3QFY11 -10 -10 14 13 13 1.29 11 Growth (%) 23 2QFY14 19 Exhibit 2: Realizations declined INR12/bag QoQ Source: Company, MOSL Cost savings offset lower utilizations; EBITDA/ton up 40% YoY EBITDA grew by ~58% YoY (-21% QoQ) to ~INR892m (v/s est INR846m), translating into margins of 15.6% (-3.3pp QoQ, +3.1pp YoY). EBITDA/ton stood at ~INR612 (v/s est ~INR608), declined ~INR176/ton QoQ (+~INR176/ton YoY). Higher volume led operating leverage, resulted in cost/ton to be lower than estimate by ~INR93/ton, which moderated 2% QoQ (+9% YoY). It has achieved significant improvement in its fuel consumption which went down to 706 K.Ca/Kg of clinker as against 729 K.Cal in 2QFY14 (715 K.Cal in 1QFY15). Adj PAT (Provision for sales tax exemption dispute) grew ~240% YoY (-35% QoQ) to ~INR350m (v/s est ~INR312m). Exhibit 4: EBITDA/ton (INR) moderated QoQ on weaker realizations Exhibit 3: EBITDA grew ~58% YoY on strong volume 653 364 758 851 876 936 785 666 576 436 447 658 788 612 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 702 1QFY14 609 953 4QFY13 4QFY11 981 3QFY13 229 1,128 2QFY13 3QFY11 1,218 1QFY13 892 1,208 4QFY12 2QFY15 929 3QFY12 1,135 412 2QFY12 1,121 738 1QFY12 16 1QFY15 767 4QFY11 13 13 4QFY14 248 3QFY11 8 17 19 634 12 15 3QFY14 18 563 19 19 Margin (%) 2QFY14 EBITDA (INR m) 23 23 23 21 20 (INR/t) Source: Company, MOSL 31 October 2014 Source: Company, MOSL 2 J K Lakshmi Cement Key performance indicator INR/Ton Net realization Expenditure RM Cost Employee Expenses Power, Oil & Fuel Freight Other Expenses Total Expenses EBITDA 2QFY15 3,931 2QFY14 3,482 YoY (%) 12.9 1QFY15 4,170 QoQ (%) -5.7 1,069 237 795 860 358 3,319 612 898 233 777 776 363 3,046 436 19.1 2.0 2.3 10.9 -1.3 9.0 40.3 1,020 259 846 875 381 3,382 788 4.7 -8.5 -6.0 -1.7 -6.0 -1.9 -22.3 Other updates Mother plant at Durg (Clinker capacity 1.5mt and grinding capacity of 1.7mt) is set to commence operations in 4QFY15, while Orissa split grinding unit (1mt) is yet to get go ahead from Supreme Court (wildlife committee PIL), and likely to set production by March-2016. Surat grinding unit (0.7mt) has received environment clearance and expected to commence operations by 3QFY16. Next leg of capex plan (Brownfield expansion in north) will be evaluated after de-leveraging post completion of Durg unit. Raising FY15/16E EPS 14.5%/8.9% Marginally revising (a) FY15/16 volume growth estimates to 11%/18% (v/s earlier est. of 10%/15%), (b) realizations estimates of FY15/16 to INR24 and INR20 per bag respectively (v/s earlier estimates of INR27 and INR15 per bag), (c) lowering depreciation and interest cost for FY15 due to phase out of commencement of Durg capacity till March-16, and (d) lowering tax rates. It translates into 14.5%/8.9% upgrade in FY15/16 EPS, and target price of INR427 (USD100 EV/ton and implied FY16 EV/EBITDA of 8x). Maintain Buy with 16% upside. Revised forecast (INR m) Net Sales EBITDA Net Profit EPS (INR) Rev 25,865 4,810 2,325 19.8 FY15E Old 25,967 5,009 2,031 17.3 Chg (%) -0.4 -4.0 14.5 14.5 Rev 33,471 7,513 3,134 26.6 FY16E Old 32,711 7,483 2,878 24.4 Chg (%) 2.3 0.4 8.9 8.9 Source: MOSL 31 October 2014 3 J K Lakshmi Cement J K Lakshmi Cement: an investment profile Company description Recent developments JK Lakshmi Cement (JKLC), promoted by the HS Singhania group, is a North India-based cement company. It has a cement capacity of 5.3mtpa and a CPP capacity of 66MW, which makes it self-sufficient in energy. While the North and the West account for 9095% of its current dispatch mix, ongoing greenfield expansion of 2.7mtpa at Durg in Chhattisgarh would enhance its presence in the central and eastern markets, raising total capacity to 9.2mtpa by FY15. Valuation and view Key investment arguments JK Lakshmi Cement (JKLC) has very strong market mix with exposure to north India, and is entrying into east India. We expect 12.3% volume CAGR over FY14-17E, on the back of debottlenecking of clinker capacity, expansion of cement capacity and favorable market mix. Superior cost structure coupled with 10% CAGR in realizations over FY14-17E will drive 32% CAGR in cement EBITDA/ton to ~INR1,235 by FY17E. P/E (x) P/BV (x) EV/Ton (USD) EV/EBITDA (x) FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E Marginally revising (a) FY15/16 volume growth estimates to 11%/18% (v/s earlier est. of 10%/15%), (b) realizations estimates of FY15/16 to INR24 and INR20 per bag respectively (v/s earlier estimates of INR27 and INR15 per bag), (c) lowering depreciation and interest cost for FY15 due to phase out of commencement of Durg capacity till March-16, and (d) lowering tax rates. It translates into 14.5%/8.9% upgrade in FY15/16 EPS, and TP of INR427 (USD100 EV/ton and FY16 EV/EBITDA of 8x). Maintain Buy with 16% upside. Sector view Comparative valuations NIL Pricing environment is expected to remain strong till on-set of monsoon. Stable government would be key driver of demand and pricing recovery from 2HFY15 onwards. 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. EPS: MOSL forecast v/s consensus (INR) JKLC 18.2 13.5 2.9 2.5 109 86 11.4 6.9 SRCM 31.6 19.6 5.4 4.3 199 186 15.2 10.1 JKCE 28.2 12.1 2.2 1.9 88 82 11.3 6.9 Shareholding pattern (%) FY15 FY16 MOSL Forecast Consensus Forecast Variation (%) 19.8 26.6 14.0 20.0 41.3 33.1 Target Price (INR) Upside (%) Reco. 427 16.0 Buy Target price and recommendation Current Price (INR) 368 Stock performance (1-year) Sep-14 Jun-14 Sep-13 Promoter 45.9 46.0 46.0 DII 18.7 17.7 13.1 FII 11.0 9.2 6.8 Others 24.4 27.2 34.2 Note: FII Includes depository receipts 31 October 2014 4 J K Lakshmi Cement Financials and valuations Income statement Y/E Mar Net Sales Change (%) EBITDA EBITDA Margin (%) Depreciation EBIT Interest Other Income Extraordinary items PBT Tax Tax Rate (%) Reported PAT Adjusted PAT Change (%) Min. Int. & Assoc. Share Adj Cons PAT (INR Million) 2014 20,566 0.1 9,604 46.7 1,352 8,253 772 443 185 7,739 224 2.9 7,515 1,079 -42.6 0 1,079 2015E 25,865 25.8 12,606 48.7 1,432 11,174 1,023 380 495 10,037 336 3.3 9,700 2,325 115.5 0 2,325 Balance sheet Y/E Mar Share Capital Reserves Net Worth Debt Deferred Tax Total Capital Employed Gross Fixed Assets Less: Acc Depreciation Net Fixed Assets Capital WIP Investments Current Assets Inventory Debtors Cash & Bank Loans & Adv, Others Curr Liabs & Provns Curr. Liabilities Provisions Net Current Assets Total Assets 31 October 2014 2016E 33,471 29.4 17,162 51.3 2,204 14,958 1,491 360 0 13,827 1,045 7.6 12,782 3,134 34.8 0 3,134 2017E 40,791 21.9 21,804 53.5 2,367 19,437 1,257 360 0 18,540 1,967 10.6 16,573 5,319 69.7 0 5,319 (INR Million) 2014 589 12,444 13,032 16,042 1,226 30,300 29,753 14,034 15,719 9,080 0 6,388 1,024 555 352 4,457 5,364 4,950 415 1,024 30,300 2015E 589 13,935 14,523 18,042 1,226 33,792 41,833 15,465 26,367 2,000 0 7,613 1,343 698 121 5,451 6,666 6,162 504 947 33,792 2016E 2017E 589 589 16,655 21,561 17,244 22,149 17,042 12,542 1,226 1,226 35,512 35,918 46,333 48,333 17,669 20,036 28,663 28,297 1,500 1,500 0 0 9,908 12,439 1,742 2,123 905 1,103 498 1,471 6,762 7,742 9,036 10,795 7,992 9,615 1,045 1,180 872 1,644 35,512 35,918 E: MOSL Estimates Ratios Y/E Mar Basic (INR) EPS Cash EPS Book Value DPS Payout (incl. Div. Tax.) Valuation(x) P/E Cash P/E Price / Book Value EV/ton (USD-Cap) EV/EBITDA Dividend Yield (%) Profitability Ratios (%) RoE RoCE Turnover Ratios (%) Asset Turnover (x) Debtors (No. of Days) Inventory (No. of Days) Creditors (No. of Days) Leverage Ratios (%) Net Debt/Equity (x) 2014 2015E 2016E 2017E 9.2 20.7 110.7 2.0 25.5 19.8 31.9 123.4 0.0 17.8 26.6 45.3 146.5 0.0 13.2 45.2 65.3 188.2 0.0 7.8 39.2 17.4 3.2 125 15.1 0.6 18.2 11.3 2.9 109 11.4 0.8 13.5 7.9 2.5 86 6.9 0.8 8.0 5.5 1.9 77 4.4 0.8 58.6 28.7 70.4 34.9 80.5 43.2 84.1 54.4 0.7 9.9 18.2 164.8 0.8 9.8 19.0 169.6 1.0 9.9 19.0 178.9 1.1 9.9 19.0 184.8 1.2 1.2 1.0 0.6 2014 3,020 0 0 443 -132 1,032 4,177 -4,924 -413 0 -5,337 -220 2,653 -772 -275 1,385 226 127 352 2015E 4,810 0 0 380 -336 -154 4,205 -5,000 0 0 -5,000 0 2,000 -1,023 -413 564 -231 352 121 2016E 7,513 0 0 360 -1,045 453 7,282 -4,000 0 0 -4,000 0 -1,000 -1,491 -413 -2,904 377 121 498 Cash flow statement Y/E Mar OP/(Loss) before Tax Depreciation Others Interest Direct Taxes Paid (Inc)/Dec in Wkg Cap CF from Op. Activity (Inc)/Dec in FA & CWIP (Pur)/Sale of Invt Others CF from Inv. Activity Inc/(Dec) in Net Worth Inc / (Dec) in Debt Interest Paid Divd Paid (incl Tax) CF from Fin. Activity Inc/(Dec) in Cash Add: Opening Balance Closing Balance (INR Million) 2017E 10,550 0 0 360 -1,967 200 9,143 -2,000 0 0 -2,000 0 -4,500 -1,257 -413 -6,170 973 498 1,471 5 Disclosures This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This J K Lakshmi Cementto report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. 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