Bonding It Tight - J K Lakshmi Cement

We had recommended J K Lakshmi Cement to our investors as one of our low priced scrips in Issue No 9 dated April 13, 2009 at Rs 53.25. Our recommendation was backed by such factors as the good growth in dispatches, expectation of a better performance in FY10 on account of hike in cement prices, its recently completed expansion project and the company’s further expansion plans. Its book value of Rs 103 as against the price of Rs 53.25 was another factor. But the most important aspect was that its total capacity of 4.85 million tonnes was valued at Rs 1,700 crore (Rs 350 crore for 1 million tonnes) while the total EV stood at Rs 1,230 crore, thus providing further scope for upward movement.

After our recommendation, the scrip moved up and is now trading at Rs 107.55, providing an appreciation of 102 per cent in just 2 months as compared to 40 per cent returns provided by the Sensex. It is possible therefore that the counter will take a beating and hence investors should book profit at this stage. The financial performance has been good for Q4FY09 with a topline of Rs 403.06 crore and a bottomline of Rs 104.08 crore as compared to Rs 339.54 crore and Rs 67.63 crore respectively for Q4FY08. There are other reasons to recommend this move. The scrip has moved up substantially and its valuations have undergone a change. Due to the rise in its market cap, its EV has gone up to Rs 1,581 crore. So the gap between EV and its total value has already narrowed. Further, the price is trading above its book value of Rs 103. We have already intimated investors on May 14, 2009 through our SMS service to book partial profit at Rs 74. It’s still not too late for those who have not done so.