JK Cement - Result beats estimates, maintain Buy - Centrum

JK Cement's Q3FY13 result was above estimates with EBITDA at Rs1.3bn (vs. est. Rs1.1bn), EBITDA margin at 19.5% (vs. est. 16.6%) and adjusted profit at Rs570mn (vs. est. Rs455mn). Higher operating profit was primarily due to lower raw material costs which led to 6% QoQ decline in op. cost for grey cement segment. Revenue during the quarter was at Rs6,869mn (vs. est. Rs6,873mn). In 9M FY13, grey cement sales volume of the company increased 9.8% YoY with improved utilization rate of the South plant (~71% against ~44% in FY12) and we expect volume growth of 9.6% in FY13E. Going forward, grey cement volume growth is expected to be at 6% and 3.8% in FY14E and FY15E respectively. The expansion plan of 3mt (split grinding units of 1.5mt each in Haryana and Rajasthan) are on track and the management expects these plants to get commissioned by end-FY14E. White cement sales volume has grown by 13.5% YoY to 0.31mt during 9MFY13 and for full year FY13E, we are expecting volume growth of 14% YoY. Going forward, with its planned expansion of white cement capacity (0.6mt by H1FY14E against 0.4mt at FY12 end), we expect sales volume growth of 10.6% and 14.6% in FY14E and FY15E respectively. We believe that higher grey and white cement sales volume will lead to improved earnings for the company and expect it to grow at a CAGR of 25.4% between FY12-FY15E. Higher earnings will lead to improvement in RoE and we expect RoE to improve to 17.8% in FY14E against 12.3% in FY12. We maintain Buy on the stock with a price target of Rs458, upside of 41.9% from CMP.

Better performance of white cement segment helps to post better results: Revenue of the company increased 11.7% YoY to Rs6.9bn led by 55.1% YoY growth in white cement's revenue. Revenue from grey cement was down 0.6% YoY during the quarter. EBITDA increased 11.9% YoY to Rs1.3bn driven by 42.2% YoY growth in op. profit of white cement. Op. profit of grey cement declined 6.3% YoY led by lower volume and higher costs. EBITDA margin was at 19.5% against 19.4% in Q3FY12. Adj profit of the company increased 31% YoY to Rs570mn.

Lower sales volume and higher cost impact performance of grey cement: Led by 1.2% YoY decline in sales volume, revenue from grey segment was down 0.6% YoY to Rs4.8bn. Lower sales volume and 1.8% YoY increase in op. cost/tonne resulted in 6.3% YoY decline in op. profit of the segment to Rs784mn. EBITDA/tonne of grey cement was at Rs623 against Rs656 in Q3FY12.

Impressive performance of white cement: Revenue from the white cement segment increased 55.1% YoY to Rs2.1bn driven by 35% YoY increase in sales volume and 14.8% YoY increase in realization. EBITDA from this segment was up 42.2% YoY (and 27.2% QoQ) to Rs553mn. EBITDA/tonne increased 5.3% YoY (and 8.6% QoQ) to Rs4,676/tonne.

Maintain Buy on attractive valuations: At the CMP, the stock trades at 6.8x FY14E EPS, 4x EV/EBITDA and EV/tonne of US$71.9. We expect improvement in RoE of the company to 17.8% by FY14E against 12.3% in FY12. Profit of the company is expected to grow at a CAGR of 25.4% between FY12-15E. We maintain Buy on the stock with a price target of Rs458, upside of 41.9% from CMP.

Source : Equity Bulls

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