Stellar performance, maintain Buy JK Cement :: Centrum

Stellar performance, maintain Buy
JK Cement’s Q2FY13 result was above estimates with EBITDA at Rs1.3bn (vs.
est. Rs1.2bn), EBITDA margin at 18.2% (vs. est. 17.2%) and profit at Rs541mn
(vs. est. Rs410mn). Higher profit was largely due to a) higher sales of white
cement at 0.10mt (vs. est. 0.09mt), b) grey cement realization at
Rs3,973/tonne (vs. est. Rs3,939/tonne) and c) 22.5% QoQ decline in interest
cost to Rs290mn. Going forward, with higher sales from South plants in the
current year, the management believes that grey cement sales volume could
increase by 8-10% in FY13E. Last year, sales volume from this plant was ~44%
which is expected to improve to ~70% in FY13E. The expansion plan of 3mt
(split grinding units of 1.5mt each in Haryana and Rajasthan) is on track and
the management expects these plants to get commissioned by end-FY14E.
We believe that higher grey and white cement sales volume will lead to
improved earnings for the company and expect EPS to grow by 53.1% YoY to
Rs39.4 in FY13E. EPS of the company is expected to grow at a CAGR of 24.7%
between FY12-FY15E. Higher earnings will lead to improvement in RoE to
16.9% in FY13E against 12.3% in FY12. JK Cement is our top-pick among midcaps
and we maintain Buy on the stock with a price target of Rs354, upside of
30.5% from the CMP.
Better performance from both segments helps to post better results:
Revenue of the company increased 39.3% YoY to Rs7.1bn led by 40.9% YoY
growth in grey cement revenue and 34.6% YoY growth in revenue of white
cement. EBITDA increased 114.9% YoY to Rs1.3bn and EBITDA margin
expended 6.4pp YoY to 18.2%. EBITDA margin expansion was primarily due to
7.9pp YoY improvement in op. margin of grey cement. Adj profit of the
company increased 15.2x YoY to Rs541mn.
Higher realization and sales volume lead to stellar performance from grey
cement: Led by 17.8% YoY sales volume growth and 19.6% YoY realization
growth, revenue from grey segment increased 40.9% YoY to Rs5.4bn. Higher
realization and sales volume led to 189.2% YoY growth in operating profit of this
segment to Rs839mn and EBITDA margin expanded 7.9pp YoY to 15.4%.
Operating cost of grey cement increased 9.3% YoY to Rs3,360/tonne primarily
due to an increase in raw material, energy and freight costs. EBITDA/tonne of
grey cement increased 145.4% YoY to Rs614/tonne.

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Sequential improvement in operating profit of white cement: Sales
volume of white cement increased 12.2% YoY (and 9.3% QoQ) to 0.10mt and
realization increased 19.9% YoY (and 2.6% QoQ) to Rs16,792/tonne. EBITDA
from this segment was up 17.6% YoY (and 9.8% QoQ) to Rs435mn.
EBITDA/tonne increased 4.8% YoY (and 0.5% QoQ) to Rs4,307/tonne.
Earnings estimates revised upwards: We have revised our earnings
estimates upwards by 2%/1.6% for FY13E/FY14E to Rs39.4 and Rs43.5
respectively.
Maintain Buy on attractive valuations: At the CMP, the stock trades at 6.2x
FY14E EPS, 3.3x EV/EBITDA and EV/tonne of US$64.6. We expect improvement
in RoE of the company to 16.9% in FY13E against 12.3% in FY12. For FY13E, we
are expecting 53.1% YoY growth in EPS to Rs39.4. Earnings of the company is
expected to grow at a CAGR of 24.7% between FY12-FY15E. We maintain Buy
on the stock with a price target of Rs354, upside of 30.5% from the CMP.