JK Lakshmi Cement - Accumulate

JK Lakshmi Cement currently operates 3.5 million tonnes per year of cement capacity. The company is a leading player in north-west India with a wide network of 1500 dealers and 60 cement dumps. The company premium brand includes JK Lakshmiplast and JK Lakshmi Ready Concrete Mix (RMC).JK Lakshmi Cement is planing to set up a greenfield cement plant operating around 2-2.5 MTPA capacity with a investment of around 650 Crores in the next three years. This is expected to widen it's presence in the eastern and southern states of India.

Expansion Details
1) The company is currently increasing it's cement capacity from 3.5 MPTA to 5 MTPA. This is expected to be operation by October 2008.
2) The company currently operates 5 RMC plant and expects to add 7 RMC units this fiscal.
3) The firm recently commissioned fully it's 36MW captive power plant.

This is expected to improve it's Operating margin from the current quarter.Investor with medium risk profile can consider investment into this stock with a horizon of 2 years. At the current market price of Rs. 168/- the stock valuations appears to be discounted compared to it's mid-cap peers.
The stock currently trades at less than 4 times it's trailing 12 month EPS of 45. We initiate a buy call in this stock with a target of Rs. 320/- on it's current valuation. With the complete expansion in place which the company is undertaking, we expect the stock to be a potential multibagger.
The current quarter Q3' 07 results were below our expectation and also we saw a steep decline in Operating margins. We expect the margins to improve with the commission of Captive power plant. The bottomline of the company is also set to increase with the restructuring of it's 325 crore debt.
Risk
1) Cement imported from Asian counterparts like china and Thailand have become cheaper after goverment scrapping import duty.2) Domestic cement prises are in it's peak, Possible reversal.3) High Interest expense due to higher Debt ratio.