JK Lakshmi Cement - Rs.135.00

Incorporated in 1982, JK Lakshmi Cement Ltd. (JKLC), formerly known as JK Corporation, is the flagship company of the reputed and diversified Hari Shankar Singhania group which also manages JK Paper Ltd. and JK Industries Ltd. From a modest beginning with a small plant of 5,00,000 TPA capacity, JKLC today with 3,00,000 MTA is one of the leading cement companies in the northern and western markets. Its brand name ‘JK Lakshmi’ is quite popular and emphasises on ‘Mazbooti ki Guarantee’. The company has a wide network of 1500 dealers apart from its own marketing offices in Rajasthan, Gujarat, Maharashtra, Punjab, Haryana, Delhi, UP, Uttaranchal, HP and J&K with 60 godowns at various places in every state to ensure uninterrupted supply to customers. However, 70% of its sales comes from Rajasthan and Gujarat alone.

JKLC’s manufacturing plant is located at Sirohi in Rajasthan having a clinker capacity of 28 lakh TPA and grinding capacity of nearly 30 lakh TPA. It has acquired the latest technologies from Blue Circle Industries PLC of UK and Fuller International of USA. Incidentally, the blended cement production of the company accounts for less than 50% against the industry norm of about 65%. Blended cement has a better margin as the cost of production is low due to mixing of 20% fly ash. The company is, therefore, taking measures to increase the proportion of blended cement to 75% by FY07 and to 85% by FY08. Currently, JKLC is also selling clinker in the open market due to insufficient grinding capacity. Hence it is putting up two grinding units of 5 lakh tonnes each, of which one is expected to commence operation in the next few months and the second one by Dec.’07. Post expansion, its cement capacity will stand augmented to 40 lakh tonnes i.e. 4 million TPA. It is also setting up 36 MW pet coke based captive power plant, which is expected to be operational by Jun.’07 and will be lead to substantial saving in power cost to the extent of Rs.30 cr. per year.

Post restructuring and de-merger, the company’s balance sheet has become much stronger. To fund its expansion plan, it has issued around 36 lakh equity shares to Fenner India at Rs.97.50 and 41 lakh warrants to be converted into shares at the same rate. With the rise in share capital/reserves and repayment of debts beginning Jan.’07, its debt-equity ratio will improve going forward. And importantly, the OPM of the company is rising sharply due to higher realization, higher capacity utilization and lower cost of production and it may report an OPM of 28% for FY07 compared to 14% in FY05. For H1FY07, its net sales jumped 40% to Rs.352 cr. whereas net profit tripled to Rs.62 cr. On a conservative basis, it may end FY07 with turnover of Rs.725 cr. and PAT of Rs.115 cr. i.e. EPS of Rs.18 on its fully diluted equity of Rs.65 cr. At its current equity capital of Rs.57 cr., the EPS would work out to more than Rs.20. For FY08, it may report much higher EPS. Assuming a reasonable discounting of 12 times, the scrip could trade above Rs.220. Investors are strongly recommended to buy for 50% return in a year’s time.