JK LAKSHMI CEMENTS

Most had expected cement companies in general to post poor numbers given the fact that seasonally, Q2 is its worst. But JK Cements posted much poorer numbers than expected. Its net profit plunged 80% (YoY) at Rs.10 crore due to fall in cement prices and high freight charges. Topline declined over 8.5% at Rs.449 crore. Last year monsoon was late and it came in only in Q3 unlike this year, monsoon was on time thus the numbers look worse on YoY. Its two major markets are Gujarat and North India.  Gujarat saw a degrowth of 15% and growth in North India too was down and overall, the company during the quarter saw a degrowth of 4%. High transport charges is what hit operating performance. Transport and forwarding as a percentage of sales is at 22%. Railway freight charges too have gone up and that too added to its woes. Fuel and power costs came lower and that helped a bit. Due to the weak demand, the company could not pass on the burden of increased costs to the consumer and that hit the margins. EBITDA margin came in at 12.5% v/s 23% (YoY).

Monsoon has extended into Q3 and till date, demand has not really picked up for cement. The company is now exploring alternate means of transport, other than railways to bring down the costs. Realisations have been lower at Rs.3600/tonne v/s 4200.tonne (YoY). Unless demand picks up over the next 2 months, we could see another poor quarter. Q3 is expected to be better than Q2 and though topline could see a jump, for margins to improve, it would necessarily need to pass on increased costs to the consumer, which in turn depends on demand going up. Its capacity will be more than doubled to 11.3 million tonne by end of FY15 from present capacity of 5.7 million tonne after completion of its greenfield project at Durg, expansion of grinding capacity at Haryana, augmentation of Kiln I at Jaykaypuram and solar project in Rajasthan.