J.K. Cement Ltd. is one of the leading cement players in the country. The company has an installed capacity of 4 million tons and is one of the top five producers of grey cement in the northern region. This 4 Mn tonnes is produced from two cement plants. It is also the second largest producer of White Cement in the country with an installed capacity of 0.35 Mn tons per annum.


What is new?
The substantial increase in the net profit coupled with an acquisition of a cement plant with an estimated capacity of 3 – 3.5 lakh tonnes of grey cement made us look into this counter.
For the quarter ending December 2006, the company reported an increase in production of Grey Cement by 45,000 tons. Apart from this, there has been an increase in prices of cement. This had resulted in a robust 44 per cent growth in the top line of the company from Rs. 221.7 crores in the previous corresponding quarter to Rs. 319 crores in Q3FY07. On the other hand, the company was able to reduce its costs during the quarter. This had resulted in a 163 per cent growth at the PBDIT level. The PBDIT increased to Rs. 90 crores as compared to Rs. 34 crores in the previous corresponding quarter. This had helped the company to record a bottom line growth of 545 per cent. The profits of the company soared to Rs. 50 crores as compared to Rs. 8 crores.
The company also acquired in the recent past Nihon Nirman from Industrial Development Bank of India (IDBI) for Rs 42 crore. This acquisition is expected to increase the overall output of cement by atleast 3 lakh tonnes. Nihon Nirman produces white cement, the company is investing another Rs. 33 crores for converting the plant to produce grey cement.
The production of this plant is expected to begin by September this year. This would help JK increase its grey cement capacity at a lower cost. The grey cement which is produced from Nihon Nirman is planned to be sold in the northern markets, where the company enjoys a strong presence.
The plant is expected to cater to the Rajasthan market. This plant marks the third plant in the same state. This will mean some cost synergies for the company also.

At the current market prices of Rs. 194, the scrip discounts its historical FY06 EPS of Rs. 4.7 by 55x. Taking the current growth into consideration and also the clear line of sight as far as increase in capacity coupled with an expected firm trend in cement prices, we expect the company’s EPS to grow to Rs. 25. We expect the scrip to be discounting the FY07E EPS by 10x. We recommend a strong Buy on the counter.

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