ICICI Securities Limited

Result Update
August 2, 2011
Rating matrix
Rating Target Target Period Potential Upside : : : : Hold | 123 12 months 9%

JK Cement (JKCEME)
| 113
WHATS CHANGED
PRICE TARGET....................................................................................................Unchanged
FY12E 2315.3 351.0 15.2 83.5 11.9 FY13E 2697.4 411.7 15.3 108.6 15.5

Key Financials
FY10 Net Sales EBITDA EBITDA Margin (%) Net Profit EPS (|) 1826.7 439.1 24.0 225.7 32.3 FY11 2080.8 264.2 12.7 64.1 9.2

EPS (FY12E)......................................................................... Changed from | 10.2 to | 11.9 EPS (FY13E)......................................................................... Changed from | 11.3 to | 15.5 RATING....................................................................................... Changed from Buy to Hold

Realisation gain leads to spurt in earnings

JK Cements Q1FY12 net sales of | 605 crore and net profit of | 49.9 crore were ahead of our respective estimates of | 564 crore and | 22 crore. This was on account of higher-than-expected blended realisation, which increased ~10% YoY (~5% QoQ) to | 4273/tonne against our estimate of | 3930/tonne. Blended EBITDA improved ~36% YoY (~30% QoQ) to | 908/tonne (our estimate: | 625/tonne) due to a significant rise in realisation. Grey cement volumes remained muted in Q1FY12 as it increased ~4% YoY and declined ~13% QoQ. Going forward, we expect the blended sales volume to increase ~6% YoY in FY12E and ~11% YoY in FY13E. Also, the company is setting up a 3.5 MT brownfield expansion at Mangrol, Rajasthan, which would take the companys grey cement capacity to 11 MTPA by FY14E. Blended cement volume up ~5% YoY, realisation up ~10% YoY Grey cement sales volumes increased ~4% YoY to 1.33 MT but declined ~13% QoQ. Grey cement realisation improved ~8% YoY (~5% QoQ) to | 3650/tonne due to significant price hikes across its markets during March-April 2011. White cement sales volume increased ~26% YoY (declined ~17% QoQ) to 0.09 lakh tonnes while white cement realisation improved ~6% YoY (~9% QoQ). Blended EBITDA improves ~36% YoY (~30% QoQ) to | 908/tonne The blended EBITDA has improved significantly by ~36% YoY (~30% QoQ) to | 908/tonne on the back of a sharp increase in realisations. Thus, the OPM has improved by 404 bps YoY (398 bps QoQ) to 21.3%.

Valuation summary
FY10 PE (x) Target PE (x) EV to EBITDA (x) EV/Tonne(US$) Price to book (x) RoNW (%) RoCE (%) 3.5 3.8 3.9 55 0.6 16.7 14.6 FY11 12.3 13.5 6.8 49 0.6 4.7 5.8 FY12E 9.5 10.3 5.8 51 0.6 5.9 7.3 FY13E 7.3 7.9 6.3 57 0.5 7.4 6.7

Stock data
Mcap Debt (FY11) Cash & Invest (FY11) EV 52 week H/L Equity cap Face value MF Holding(%) FII Holding(%) | 790 crore | 1254 crore | 236 crore | 1808 crore | 199 / 101 | 69.9 crore | 10 7.0 12.8

Price movement
200 150 100 50 0 Sep-10 Jan-11 May-11 Jul-10 Mar-11 Nov-10 Jul-11 7500 6000 4500 3000 1500 0

Valuation

At the CMP of | 113, the stock is trading at 9.5x and 7.3x its FY12E and FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 5.8x and 6.3x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock is trading at $51 and $57 its FY12E and FY13E capacities, respectively. We have valued the stock at $75/tonne (~40% discount to the replacement cost) at its FY13E blended capacity of 7.5 MT. We have assigned a HOLD rating to the stock with a target price of | 123/share.
Exhibit 1: Financial Performance
(| Crore) Net Sales EBITDA EBITDA Margin (%) Depreciation Interest Other Income Reported PAT EPS (|) Q1FY12 605.5 128.7 21.3 30.5 28.1 3.7 49.9 7.1 Q1FY12E 563.9 89.7 15.9 31.1 31.0 6.0 22.5 3.2 Q1FY11 521.8 89.8 17.2 27.0 22.9 4.2 29.4 4.2 Q4FY11 666.1 115.1 17.3 31.0 29.4 13.4 53.6 7.7 QoQ (Chg %) -9.1 11.8 398 bps -1.6 -4.6 -72.1 -6.9 -6.9 YoY (Chg %) 16.0 43.3 404 bps 12.9 22.5 -10.8 69.7 69.7

JKCEME (LHS)

NIFTY (RHS)

Analysts name
Vijay Goel vijay.goel@icicisecurities.com Rashesh Shah rashes.shah@icicisecurities.com Hitesh Taunk hitesh.taunk@icicisecurities.com

Source: Company, ICICIdirect.com Research

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ICICI Securities Limited

Net sales increase ~16% YoY on better volumes and realisations
Net sales increased ~16% YoY to | 605.5 crore in Q1FY12 on account of an increase in cement sales volumes and realisations. Blended sales volume (grey & white) increased ~5% YoY (declined ~14% QoQ) to 1.42 MT while blended realisation improved ~10% YoY (~5% QoQ) to | 4273/tonne. Grey cement sales increased ~12% YoY to | 485.5 crore as the grey cement volume increased ~4% YoY to 1.33 MT and realisation improved ~8% YoY (~17% QoQ) to | 3650/tonne. Sequentially, the sales from the grey cement business declined ~9% as the ~9% decline in grey cement volume negated the impact of ~5% QoQ increase in grey realisation. In the white cement segment, the company has reported revenues of | 120.0 crore, which increased ~34% YoY aided by ~26% YoY increase in white cement volume to 0.09 MT and ~6% YoY increase in white cement realisation to | 13793/tonne. Sequentially, revenues from the segment declined ~9% on the back of ~17% decline in sales volume.
Exhibit 2: Sales volume and realisation of grey & white cement
Q1FY12 Grey Cement Sales Volume (MT) Realisation (| per tonne) Net Sales (| Cr) White Cement (including wall putty) Sales Volume (MT) Realisation (| per tonne) Net Sales (| Cr) 0.09 13793 120.0 0.07 13014 89.8 26.1 6.0 33.6 0.11 12600 132.3 -17.1 9.5 -9.3 1.33 3650 485.5 1.27 3389 432.0 4.3 7.7 12.4 1.54 3473 533.8 -13.5 5.1 -9.1 Q1FY11 YoY (%) Q4FY11 QoQ (%)

Source: Company, ICICIdirect.com Research

Blended EBITDA/tonne jumps ~36% YoY, ~30% QoQ on higher realisation

The blended EBITDA/tonne increased ~36% YoY (~30% QoQ) to | 908/tonne in Q1FY12 on account of a ~10% YoY (~5% QoQ) increase in blended realisation. The blended total cost/tonne increased ~5% YoY to | 3365/tonne but increased marginally on a QoQ basis. The power & fuel cost increased ~20% YoY and ~33% QoQ to | 1235/tonne on the back of increase in petcoke prices and higher clinker production during the quarter.
Exhibit 3: Per tonne analysis (blended)
The blended realisation has improved ~10% YoY (~5% QoQ) to | 4273/tonne. The total cost has remained almost flat QoQ at | 3365/tonne. The EBITDA/tonne improved significantly ~36% YoY (~30% QoQ) to | 908/tonne
| per tonne Sales Volume (MTPA) Net Realisation Total Expenditure Stock Adj Raw material Power & fuel Freight Employees Others EBITDA per Tonne Q1FY12 1.42 4273 3365 -211 514 1235 794 263 769 908 Q1FY11 1.34 3884 3215 -263 496 1030 918 237 797 668 YoY (%) 5.5 10.0 4.6 NA 3.7 19.9 -13.5 11.0 -3.5 35.9 Q4FY11 1.6 4057 3356 161 479 932 905 217 662 701 QoQ (%) -13.7 5.3 0.3 NA 7.2 32.6 -12.3 21.6 16.2 29.6

Source: Company, ICICIdirect.com Research

Net profit surges ~70% YoY on significant improvement in operating margin

The company has reported ~70% YoY jump in net profit of | 49.9 crore on account of ~404 bps YoY improvement in the operating margin, led by higher realisations.

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ICICI Securities Limited

Exhibit 4: Grey cement sales volume and realisation trend
Grey cement sales volumes rose ~4% YoY but declined ~13% QoQ to 1.33 MT in Q1FY12 as against 1.27 MT in Q1FY11 and 1.54 MT in Q4FY11
Million tonnes 12.00 10.00 8.00 6.00 4.00 2.00 0.00 FY12E Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 FY13E FY11 1.27 1.13 1.18 1.54 1.33 5.12 5.46 3389 2876 2977 3473 3650 3206 3374 3606 4000 3000 6.09 2000 1000 0 | per tonne
| per tonne

Grey Cement Sales Volume (LHS)

Realisation (RHS)

Source: Company, ICICIdirect.com Research

Exhibit 5: White cement sales volume and realisation trend

12.00 15000 14069 13014 13249 12600 3.32 0.69 Q1FY11 0.71 Q2FY11 0.87 Q3FY11 1.05 0.87 FY12E Q1FY12 FY13E
15.2 12.7 8.0 1.3 Q1FY11 Q2FY11 0.4 Q3FY11 Q4FY11 3.1 Q1FY12 FY11 8.2 3.6

White cement (including wall putty) sales volumes rose ~26% YoY to 0.87 lakh tonne in Q1FY12 as against 0.69 increased ~6% YoY (~9% QoQ) to | 13793/tonne
Lakh tonnes

10.00 8.00 6.00 4.00 2.00 0.00

13793 13209

14000 13654 14000 13000 3.47 3.58 12000 11000

lakh tonne in Q1FY11. White cement realisations

Q4FY11

White Cement Sales Volume (LHS)

FY11

Realisation (RHS)

Source: Company, ICICIdirect.com Research *including wall putty

Exhibit 6: EBITDA margin (%) and PAT margin (%) trend

25.0 20.0 21.3 17.2 11.4 5.6 17.3 15.3

The EBITDA margin has improved by 404 bps YoY and 393 bps QoQ to 21.3% in Q1FY12 as against 17.2% in Q1FY11
%

15.0 10.0 5.0 0.0 -5.0 -10.0 -4.9

and 17.3% in Q4FY11

4.0

FY12E

EBITDA Margin (LHS)

PAT Margin (RHS)

Source: Company, ICICIdirect.com Research

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FY13E

ICICI Securities Limited

Capex plan
The company is increasing its grey cement capacity by 3.5 MTPA through the brownfield expansion at Mangrol, Rajasthan. This is expected to get commissioned by Q3FY14 and would increase the grey cement capacity to 11 MTPA by FY14E. The total capex for the project is ~| 2300 crore, which would be spent over FY12-14E.

Valuations
On account of an improvement in utilisation rates, we expect the blended sales volume to increase ~6% YoY in FY12E to 5.81 MT and ~11% YoY in FY13E to 6.43 MT from 5.45 MT in FY11. We expect grey cement realisation to increase ~5% YoY in FY12E to | 3374/tonne and ~7% YoY FY13E to | 3606/tonne in FY13E. We estimate EBITDA/tonne will improve to | 605/tonne in FY12E and | 639/tonne in FY13E from | 484/tonne in FY11. At the CMP of | 113, the stock is trading at 9.5x and 7.3x its FY12E and FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 5.8x and 6.3x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock is trading at $51 and $57 its FY12E and FY13E capacities, respectively. We have valued the stock at $75/tonne (~40% discount to the replacement cost) at its FY13E blended capacity of 7.5 MT. We have assigned a HOLD rating to the stock with a target price of | 123/share.

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ICICI Securities Limited

ICICIdirect.com coverage universe (Cement)
ACC Idirect Code MCap Ambuja Cements Idirect Code MCap UltraTech Cements Idirect Code MCap Shree Cement Idirect Code MCap India Cements Idirect Code MCap JK Cement Idirect Code MCap JK Lakshmi Idirect Code MCap JKCORP 561 CMP Target % Upside Orient Paper & Industries Idirect Code MCap Mangalam Cement Idirect Code MCap Birla Corporation Idirect Code MCap Heidelberg Cement Idirect Code MCap MYSCEM 816 CMP Target % Upside 36 51 42% CY10 CY11E CY12E 865.5 917.8 1,448.9 2.8 1.7 3.2 12.9 21.7 11.2 6.0 13.7 6.5 8.1 4.6 8.2 8.9 3.7 9.5 BIRCOR 2472 CMP Target % Upside 321 379 18% FY11 FY12E FY13E 2,127.4 2,471.6 2,932.5 41.5 35.7 47.0 7.7 9.0 6.8 4.6 5.9 3.5 15.5 12.1 14.0 11.7 9.2 11.3 MANCEM 280 CMP Target % Upside 105 139 32% FY11 FY12E FY13E 491.6 556.5 683.2 14.3 12.2 16.7 7.3 8.6 6.3 4.5 4.3 5.1 9.7 8.0 10.2 7.7 8.5 10.2 ORIPAP 1217 CMP Target % Upside 60 67 12% FY11 FY12E FY13E 1,958.9 2,184.5 2,511.2 7.4 11.6 12.9 8.1 5.2 4.7 5.5 3.2 3.2 15.8 16.6 15.8 14.7 16.9 18.4 45 61 36% FY11 FY12E FY13E 1,318.8 1,444.7 1,687.1 4.8 7.2 7.3 9.3 6.3 6.2 5.2 5.8 6.9 5.7 7.9 7.5 4.8 6.0 5.2 JKCEME 790 CMP Target % Upside 113 123 9% FY11 FY12E FY13E 2,080.8 2,315.3 2,697.4 9.2 11.9 15.5 12.3 9.5 7.3 6.8 5.8 6.3 4.7 5.9 7.4 5.8 7.3 6.7 INDCEM 2120 CMP Target % Upside 69 97 41% FY11 FY12E FY13E 3,500.7 4,068.7 4,492.4 2.2 4.5 8.3 31.2 15.5 8.3 10.1 6.6 5.1 1.6 3.2 5.6 2.9 6.2 7.6 SHRCEM 6191 CMP Target % Upside 1796 2068 15% FY11 FY12E FY13E 3,511.8 4,352.5 4,784.9 59.9 16.9 187.8 30.0 106.5 9.6 7.1 5.5 4.3 10.9 3.0 25.3 5.3 4.2 21.5 ULTCEM 28215 CMP Target % Upside 1029 1081 5% FY11 FY12E FY13E 13,209.9 17,568.6 19,295.9 51.2 71.2 74.9 20.1 14.5 13.7 11.2 8.1 7.6 13.2 15.7 14.4 12.0 15.0 14.7 GUJAMB 19737 CMP Target % Upside 129 139 8% CY10 CY11E CY12E 7,390.2 8,410.6 9,313.9 8.3 7.9 8.9 15.6 16.3 14.5 9.6 8.5 7.3 17.2 15.0 15.2 19.4 19.0 18.7 ACC 18959 CMP Target % Upside 1009 1105 10% CY10 CY11E CY12E Sales (| Crore) 7,717.3 9,241.6 10,205.8 EPS (|) 59.6 52.8 62.7 PE (x) 16.9 19.1 16.1 EV/EBITDA (x) 10.8 9.9 8.4 RoNW (%) 17.4 14.4 15.5 RoCE (%) 16.7 16.9 17.9

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ICICI Securities Limited

Exhibit 7: Recommendation History
250 200 150 100 50 0 Apr-11 Feb-11 Jan-11 Dec-10 Dec-10 Dec-10 Jan-11 Feb-11 Apr-11 Oct-10 Oct-10 May-11 May-11 Mar-11 Mar-11 Jul-11 Jul-11 Jun-11 Nov-10 Nov-10 Jun-11 Jul-11 Rating BUY BUY STRONG BUY ADD HOLD HOLD BUY

Price

Target Price

Source: Bloomberg, ICICIdirect.com Research

Exhibit 8: Recent Releases

Date 8-Oct-10 16-Nov-10 10-Jan-11 16-Feb-11 8-Apr-11 2-Jun-11 5-Jul-11 Event Q2FY11 Preview Q2FY11 Result Update Q3FY11 Preview Q3FY11 Result Update Q4FY11 Preview Q4FY11 Result Update Q1FY12 Preview CMP 170 166 144 137 138 115 108 Target Price 195 195 180 149 149 123 123

Source: Company, ICICIdirect.com Research

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ICICI Securities Limited

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps / midcaps, respectively; Buy: Between 10% and 15%/20% for large caps / midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor, Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai 400 093 research@icicidirect.com ANALYST CERTIFICATION
We /I, Vijay Goel MBA FINANCE Rashesh Shah CA Hitesh Taunk MBA FINANCE research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

pankaj.pandey@icicisecurities.com

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. 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Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. 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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific transaction. It is confirmed that Vijay Goel MBA FINANCE Rashesh Shah CA Hitesh Taunk MBA FINANCE research analysts and the authors of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business. ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. It is confirmed that Vijay Goel MBA FINANCE Rashesh Shah CA Hitesh Taunk MBA FINANCE research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use of information contained in the report prior to the publication thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. 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