Saturday, 11 February 2012

JK Lakshmi Cement - It's time may have come!


I have had JK Lakshmi Cement in my portfolio for a while. My logic of buying a cement stock which is a pure commodity and something I usually avoid, is because I keep an eye out on cement dispatches and have made a fair deal in the previous cycle on Gujarat Ambuja and India Cement stocks. My experience has been that if you can buy into cement companies when they are really really cheap and no one fancies them, you can make a 5-10 bagger in a 3-4 year cycle.

With this in mind, I had bought in JK Lakshmi Cement, as it was one of the most attractively priced, that I found. The company has announced its Q3 results and it has been excellent. Net sales has increased from 315 cr to 440 cr (39.5% growth). Net profit has increased from 4.6 cr to 49.2 cr (970.4% growth). EPS has increased from 0.4 cr to 4 cr (900% growth). Dispatches have had a healthy 12.8% yoy growth to 1.22mn tonnes and strong realization growth of 26.3% yoy to Rs. 3,359/tonne.

The management has announced an equity share buyback up to an amount of Rs 97.5cr at a maximum price of  Rs 70 per share. Assuming  that entire buyback happens at  the price range of Rs 65-70,  the paid-up equity will  reduce by somewhere around 7-8%. Currently, the stock is available at a P/B of 0.7 and EV/ton of $54 both of which are at a discount to its peers.


The stock has moved up sharply in the last few weeks,from a low of 40 in the end of Dec'11 to its current price of nearly 62. The stock is still available at a reasonably cheap price and can move up significantly from here in the next 1 year. I would not be surprised if I see a triple digit price in the next 6 months.

Note: I am invested in JK Lakshmi Cement. Please take my views as biased. Consult with your financial adviser before investing.

9 comments:

  1. I am a CA and I work in the Financial Reporting Team of a large Cement Manufacturer (amongst the Top 5). As a valuation metric, we value a cement plant at close to $180/ton. So at $54 JK Lakshmi is a screaming buy !!
    http://goldensilt.blogspot.com

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  2. You are right. Depending on the location, type of cement produced, availability of power, water etc, green field projects are valued from anywhere between $130 - $200. Most Indian cement companies are sold being sold at really cheap valuations at this point in time.

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  3. Hi - I read your post again today, looked at charts of some cement companies and they all pretty much have given 60-70% returns since Jan 12. Is this a pattern that plays out reliably every time? Something to keep in mind for the next time :-) Please could you take some questions from my side -

    1. how does one find out about cement dispatches?
    2. is there some steam still left in this pattern?
    3. are there other such patterns in other industries that play out reliably?

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    Replies
    1. I wrote this post in Feb 2012 and the price was 60-62 at that time. Now it is close to 160. That is a 2.5 bagger in less than a year :-)

      My experience has been that if you can buy into cement companies when they are really really cheap and no one fancies them, you can make a 5-10 bagger in a 3-4 year cycle. The run for JK Lakshmi (or the other cement companies) have not yet gone halfway (in my opinion). Now, you will start seeing a lot of interest and brokerage reports on various cement companies. So, if you can hold on for another year or 18 months, I think you will much higher levels.

      To answer your specific questions:-
      1. Cement dispatches can be found out from various brokerage reports.
      2. I think so.
      3. I am not sure of the reliability of the cyclicality of other industries. I have made a 8-bagger in Gujarat Ambuja in the last rally (2004-2007), so was waiting and watching out this time. Bought into JK Lakshmi around 40-44 so already have a 4 bagger here in less than 2 years, and expecting it to atleast double from here as well. But you might want to study steel, copper, zinc, auto (CV & 4 wheeler) to see if there exists such a pattern.

      Delete
  4. Hi Abhishek,

    Congrats - that's awesome! I did read your post sometime in 2011 but not knowing anything about cement stocks meant I had no conviction. Now I'll be watching to make an entry :-)

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  5. typo - should read 2012 instead of 2011.

    when do you start selling these stocks? 2-3 quarters of falling dispatches?

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  6. Hi Abhishek,

    Are you looking at this again? Would love to know your views.

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    Replies
    1. Hello HG

      I am definitely looking at cement again. In an inflationary environment, any asset heavy business will do well over time, as expanding capacity will become more expensive.

      You can follow the brokerage reports on cement dispatches region-wise in India. After a while, you will get a hang of how things are going in each state.

      Delete

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