>JK CEMENT: Stellar performance, maintain Buy

JK Cement’s Q3FY12 PAT at Rs435mn was significantly above ours (est.:Rs304mn) and Bloomberg consensus estimates of Rs204mn primarily due to steep improvement in realization of grey cement (Rs3,757/tonne vs. Rs2,927/tonne in Q3FY11 and Rs3,323/tonne). EBITDA increased 120.3% YoY (and 100% QoQ) to Rs1.2bn and EBITDA margin improved 795bps YoY (and 773bps QoQ) to 19.4%. Cement prices continue to remain firm in the key markets of the company (South and North regions) and hence, grey cement realization increased Rs820/tonne YoY (up 27.9%) and Rs434/tonne QoQ (up 13% QoQ) to Rs3,757/tonne. We have factored in higher cement prices for the company due to prolonged sustainability of cement price at higher levels in the South region despite industry utilization rate of 60-65% over the past one year contrary to our expectation of a decline in cement prices due to lower utilization rate. On the back of higher realization, adjusted PAT of the company increased 9.3x YoY to Rs971mn (88% of Bloomberg consensus estimates for FY12E) in 9MFY12E and hence, we believe that consensus estimates of the company would see a significant revision. We have revised our EPS estimates by 39.5%/38.1%/2.6% for FY12E/FY13E/FY14E to Rs21.9/Rs24.8/Rs28 respectively considering higher realization of grey cement. We maintain Buy on the stock with a revised price target of Rs204 (earlier: Rs167), an upside of 50.9% from CMP.


■ Improvement in grey cement realization and sales volume lead to higher revenues….: Revenue of the company increased 29.9% YoY to Rs6.2bn led by 27.9% YoY growth in grey cement realization to Rs3,757/tonne and 18.7% YoY growth in white cement realization to Rs15,537/tonne. Grey cement sales volume grew 6.5% YoY to 1.27mt (including Clinker sales of 0.04mt).


■ ….. Leading to significant increase in EBITDA and profits: Driven by improvement in realization of both grey and white cement, EBITDA of the company increased 120.3% YoY (and 100% QoQ) to Rs1.2bn. EBITDA margin improved 795bps YoY (and 773bps QoQ) to 19.4%. Profit of the company increased 23.8% YoY (and 12.2% QoQ) to Rs435mn.




■ Significant improvement in earnings in 9MFY12: Profits of the company increased 9.3x YoY to Rs971mn in 9MFY12 primarily due to 16% YoY increase in grey cement realization in the same period. EPS of the company for 9MFY12 stands at Rs13.9 against Rs1.5 in the same period last year.


■ Earnings estimates revised upwards: We revise EBITDA estimates upwards by 17.2%/17.9%/2% to Rs4.5bn/Rs4.7bn/Rs5bn for FY12E/FY13E/FY14E to factor in higher realizations in key markets of the company. Our EPS estimates stand revised upwards by 39.5%/38.1%/2.6% to Rs21.9/Rs24.8/Rs28 for
FY12E/FY13E/FY14E respectively.


■ Maintain Buy on attractive valuations: At the CMP, the stock trades at 4.8x FY14E EPS, 3x EV/EBITDA and EV/tonne of US$46.1. We maintain Buy on the stock with a revised price target of Rs204 from Rs167 earlier considering the improvement in realizations and operating margins due to lower pet coke price and higher realizations.


RISH TRADER