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Paving recovery path
Beat street estimates hollow by sustaining net profit
Revenues of JK Lakshmi Cement (JKL) were in line with our
expectations (INR2,660 mn vs our estimates of INR2,656mn). However,
net profit was much above ours and street estimates due to higher
than expected other income and EBITDA margins. The company
reported a net profit of INR58mn as compared to our estimates of a
net loss of INR106mn.
Revenue declines on lower volume, prices
JKL reported a 23% YoY (17.8% QoQ) decline in its net sales to INR
2,660mn due a drop in cement volume and realizations. The EBITDA
for Q2FY11 weakened 75.8% YoY to INR 227mn on lower revenues
and margins. The company reported a net profit decline of 87.8% YoY
(65.7% QoQ) to INR58mn on the back of lower EBITDA and higher
interest expenses.
Operating highlights: Power, fuel costs continue to pinch
Cement volume declined by 6.2% YoY (7.4%) to 0.95 mn tonnes due to
the subdued demand. Realizations for the quarter were down 17.9 %
YoY (11.2% QoQ) at INR 2,814/tonne. Total cost per tonne increased
by 9.9% YoY to INR2,522 per tonne due to a sharp increase in power
and fuel cost per tonne which went up 49.2% YoY (16.9% QoQ) to
INR1,010 due to a hike in petcoke prices. The EBITDA per tonne for
the quarter stood at INR 293, down YoY by 74.2%.
Stock set for outperformance, maintain Buy
At CMP of INR60, the stock is trading at EV/tonne of USD53 on FY12
capacity. The stock has been languishing for past few months as street
was expecting the company to report a loss. With a better than
expected Q2FY11 results and an increase in cement prices in the key
market of the company in the range of INR20-50 per bag, we believe
that the stock will outperform broader markets in next two quarters.
Thus, we are maintaining our ‘Buy’ rating on the stock with an
unchanged price target of INR78.
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