JK Lakshmi Cement Posts Strong Result For March Quarter 2012

JK Lakshmi Cement, a leading player in north India, reported strong financial numbers for the March 2012 quarter. The net sales of the company grew by 26 per cent on a YoY basis to Rs 526 crore. This was mainly on account of the jump in sales volume and increase in the realisation during the quarter. The sales volume of the company has increased by 13.3 per cent on a YoY basis and by 15.8 per cent on a QoQ basis, mainly on the back of the revival seen in demand across the country. However, the northern region has reported a higher jump than any other state during the quarter as the state was in an election mode that helped boost the demand. Further, the realisation of the company has improved by 12 per cent on a YoY basis and 3.4 per cent on a QoQ basis to Rs 3,719 per tonne.

However, the net profit of the company declined by 5 per cent on a YoY basis to Rs 30.3 crore on the back of increase in the depreciation charges which jumped by 133 per cent on a YoY basis to Rs 54 crore. This was due to a retrospective change in the depreciation method for its captive power plant from straight line to written down value method resulting in an additional charge of Rs 24.44 crore for the quarter and Rs 39.24 crore for the earlier years.

The right parameter here will be to look at the operating performance of the company which will gives us a correct picture of the company’s performance during the quarter. The operating profit of the company grew by 20.5 per cent on a YoY basis to Rs 113.47 crore and the EBITDA margin improved by 290 bps YoY to 21.54 per cent. This was despite a jump in the raw material (up by 31 per cent) and freight charges (up by 21 per cent). The improvement in the operating profit and margin was on the back of an increase in the realisations and a fall in the power & fuel cost which declined by 3.5 per cent YoY to Rs 99.83 crore. 

It should be noted that the company has increased the usage of biomass fuel from 2 per cent to 9 per cent during the quarter which resulted into lower power & fuel cost. Moreover, the other income component jumped by 217 per cent on a YoY basis to Rs 33.35 crore on the back of increased interest income. All these above factors have helped the company to report robust numbers during the quarter.

The cement prices remained firm at an average price of Rs 300 per 50 kg bag in the March quarter but came down in April to an average of Rs 280-285 per 50 kg bag across the country. The decline in the prices is because of the expected slower construction activity during the June quarter because of the monsoon.

On the raw material side, pet coke (used as a fuel) prices will remain stable on the back of an increase in the domestic capacity and supply. However, the company has expressed concern about the hike in freight cost by the railway which is hurting the margins of the company. And if the demand slows down from here it will be difficult for the company to hold the cement prices in the coming quarter. 

As for the outlook, the company has stated that the demand will slow down a bit on the onset of the monsoon in the coming quarter but for the fiscal year 2013 the growth curve will be driven by higher infrastructure spending and due to elections in some parts of the country. In conclusion we believe that the company has reported strong numbers for the March quarter on the back of a revival in demand and some hike in the cement prices during the quarter. The monsoon may, however, have a dampener effect. With this slowdown the prices will correct by an average Rs 10-15 per 50 kg bag. However, this time the high freight cost will hurt the margins of the company as with the slowdown in demand the cement companies would not be able to pass on the hike. 

Expansion Plan

In April the company commissioned a cement grinding unit in Haryana and is in the process of an expansion of capacity through a Greenfield project of 2.7 MTPA in Durg, Chhattisgarh, thereby taking the total cement capacity from 5.3 MTPA to 8.5 MTPA by October 2013. For the expansion the company has envisaged the project cost at Rs 1,250 crore. Of the total project cost the company will raise Rs 850 crore through debt and the rest will be from internal accruals. The company has already done the financial closure for its debt requirements and as on March 31, 2012 the company has spent Rs 440 crore.