Thursday, May 31, 2012

>JK CEMENTS: Q4FY12 Result update

Stellar performance, maintain Buy

JK Cement’s Q4FY12 result was better than our expectations with EBITDA at Rs1,992mn vs. est. Rs1,550mn and adjusted PAT at Rs855mn vs. est. Rs672mn primarily driven by better than expected cement realization of Rs3,822/tonne (est. Rs3,757/tonne) and improved profitability of white cement (EBITDA/tonne increased 16% QoQ to Rs5,145/tonne). EBITDA increased  73.1% YoY (and 67.2% QoQ) to Rs1,992mn and EBITDA margin improved  744bps YoY (and 534bps QoQ) to 24.7%. On the back of higher realization and  increase in sales volume, adjusted PAT of the company increased 59.7% YoY  (and 96.6% QoQ) to Rs855mn. Going forward, the management expects the sales volume from South plants to improve and anticipates 10-12% growth in grey cement sales volume in FY13E. It expects volume growth in white cement to be 8-12% and wall putty ~25%. During FY12, the company recorded 187.5% YoY growth in adjusted profit to Rs1,800mn and operating margin improved 730bps YoY to 19.9%. We expect EPS growth of 13.4%/8.6%/23.2%for FY13E/FY14E/FY15E for the company. RoE of the company is expected to improve to 12.5% in FY14E against 4.6% in FY11. We maintain Buy on the stock with price target of Rs204, an upside of 39.7% from the CMP.

 Improvement in grey cement realization and sales volume lead to higher revenues….: Revenue of the company increased 21% YoY to Rs8.1bn led by 7.1% YoY growth in grey cement realization to Rs3,746/tonne and 12.3% YoY growth in cement sales volume (cement and clinker) to 1.71mt. White cement sales volume increased 10.5% YoY to 0.10mt and realization increased 12.3% YoY to Rs16,519/tonne.

 ….. Leading to significant increase in EBITDA and profits: Driven by improvement in realization and sales volume of both grey and white cement, EBITDA of the company increased 73.1% YoY (67.2 QoQ) to Rs1,992mn. EBITDA margin improved 744bps YoY (534bps QoQ) to 24.7%. Adjusted Profit of the company increased 59.7% YoY (96.6% QoQ) to Rs855mn.

 Significant improvement in earnings in FY12: Adjusted profit of the company increased 187.5% YoY to Rs1,800mn in FY12 primarily due to 14% YoY increase in grey cement realization and 7% YoY increase grey cement sales volume. Adjusted EPS of the company for FY12 stands at Rs25.7 against Rs9 in FY11.

 Earnings estimates revised upwards: We revise EBITDA estimates upwards by 16.2%/20.5% to Rs5.5bn/Rs6bn for FY13E/FY14E to factor in higher realization and volume growth. Our EPS estimates stands revised upwards by 17.9%/13.1% to Rs29.2/Rs31.7 for FY13E/FY14E respectively.

 Maintain Buy on attractive valuations: At the CMP, the stock trades at 4.6x FY14E EPS, 2.7x EV/EBITDA and EV/tonne of US$65. We expect improvement in RoE of the company to 12.5% in FY14E against 4.6% in FY12. We maintain Buy on the stock with a price target of Rs204.