JK CEMENT

JK Cement - Company Profile

J.K. Cement Limited founded in 1975 and is based in Kanpur, manufacture and sale of grey and white cement in India. The grey cement of the company consists of ordinary Portland cement and Portland pozzolana cement, as well as white cement based wall putty for cement plastered walls and ceilings. The company offers its grey cement products under the JK Cement brand name and white cement under the brand names of J.K. White and Camel. The company sells grey cement primarily in northern India and exports white cement to South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, the United Arab Emirates, and Nepal.

JK Cement - Investment Summary

• One of leading manufacturer of Grey cement in India

• 3rd largest player of white cement in the world cement in India

• business expansion

• Reduced its debts

• Increased production

• Increased Production

JK Cement - Financial Summary

Outlook and Valuation

The 2Q results of the company are not so effective. The company reported a standalone net profit of Rs 646.9 million for the Q2 ended Sept 30, 2018 almost 30% increase in its net profit compare to last quarter. Sales turnover for this quarter is less compare to last quarter. But the company has a strong brand name and they have well positioned in north India. The company has reduced its debt and they are expanding their business and also their production increased Considering all the point we recommend “Buy” for this stock for long term.

JK Cement - Management Profile

JK Cement - Company overview:

The company is one of the largest cement manufacturers in north India. It is also 3rd largest player of white cement in the world cement in India, which was founded by Lala Kamlapat Singhania. This company has over four decades of experience in cement manufacturing.

The Company is the 2nd largest manufacturer of white cement in India, with an annual capacity of 600,000 tonnes in India and also the second largest producer of Wall putty in the country with an annual installed capacity of 700,000 tonnes. The company was the first company to install a captive power plant in the year 1987 at Bamania, Rajasthan and also the first cement company to take care of the need of green power installed a waste heat recovery power plant. At present, with its different locations, the company has captive power generation capacity of over 140.7 MWs which include 23.2 MW of waste heat recovery power plants.

It offers a range of grey cement, which includes Portland Pozzolana cement, ordinary Portland cement and Portland slag cement. The company’s white cement portfolio includes JK white cement, Jk wall putty, Jk waterproof and Jk primaxx. It white cement is used for decorative and architectural applications. J.K. Wall Putty is white cement based fine powder, which provides a base for concrete/cement plastered walls and ceilings. J.K. Water Proof is a water repellant powder, which prevents passage of water through pores and capillaries of the concrete.

JK Cement - Products

Key Ratios

JK Cement - Investment Rationale

• 3rd largest player of white cement in the world cement in India

  The JK Cement Company is the second largest manufacturer of white cement in India, with an annual capacity of 1.20 MnTPA (Million Metric Tonne Per Annum), also the second largest producer of Wall putty in the country with an annual installed capacity of 700,000 tonnes. This was the first company to install a captive power plant in the year 1987 at Bamania, Rajasthan, also the first cement company to install a waste heat recovery power plant to take care of the need of green power. White Cement production has increased by 2 % at 5.56 Lac Tonne during the year compared to 5.44 Lac Tonne last year while production of value added product wall putty registered increase of 14% at 6.20 Lac Tonne during the year as compared to 5.43 Lac Tonne last year. Additional installed capacity of 0.20 MnTPA of White Cement-based Wall Putty at Katni, Madhya Pradesh to be commissioned in Q1 FY 2018-19.

• One of leading manufacturer of Grey cement in India

  Jk Cement is one of the leading manufacturing of Grey cement in India, with an annual capacity of 1.5MnTPA. During the year production increased by 16.53 % at 7.89 Million Tonne (compared to 6.77 Million Tonne last year) and sales increased by 15.98% at 7.88 Million Tonne (compared to 6.79 Million Tonne last year).

  

• business expansion

  The company recently launched a qualified institutional placement offering to raise around ₹ 6000 crore from institutional investors for its capital expenditure. The company will be using that amount for business expansion. JKCE has launched a premium product, Super Strong, in South India in October 2018. The same will be launching in other markets in the coming days.

• Reduced its debts

  The company has reduced its total debt levels in the last twelve months, from ₹33b to ₹29b which includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at ₹6.1b for investing into the business.

Industry Profile

India is the world's second-largest cement market and has added 110 million tonnes of cement by way of capacity in the last five years. India's cement capacity stood at 460MTPA as of December 2017 and is expected to increase by 5.0-5.5% y-o-y in FY18. India has 575 operational cement plants in the country and this industry is largely dominated by private players (98%). The top 20 cement company’s manufacture around 70% of the total cement and a larger share of bigger plants are situated across southern and western parts of India across the states of Rajasthan, Andhra Pradesh, and Tamil Nadu.

The cement industry is dependent on natural resources and is highly energy intensive. Natural resources like limestone, coal and minerals are essential to produce cement. The industry needs to ensure the continuous supply of these materials at an optimum cost and quality, however due to the depletion of reserves, this is becoming challenging. Volatility in the price of coal is also an area of concern for the industry. The quality of raw material additive and mineral gypsum is also depleting. The MMDRA Act’s new notification as of 12 January 2015 stated that the renewal of mining leases and grants of mining leases and composite licenses will happen through auctions. For continuous operation, there is a need to secure limestone with a minimum reserve of 50 years.

The year was a relatively slow and difficult one for the industry. Cement demand was flat at 1% during the year, affected mainly by demonetization but also because of sand shortage, implementation of the real estate regulatory authority act, weather implications and introduction of GST. A slowdown in the housing sector, which utilizes 65% of India's total cement, also led to the deceleration. Ban on sand mining, use of pet coke and diminished market concentration of industry leaders are some of the other contributing factors. Rural demand was affected by less-than-normal monsoon, while cement demand from industrial capital expenditure was adversely affected due to existence of excess capacities across various industrial sectors.

The ready-mixed concrete industry has been considerably successful globally. RMC in India is still at a nascent stage. RMC accounts for only about 10-12% of the total concrete production in India, which is a small number as compared to western countries, where it comprises 50-70% of the total concrete consumption volume. The penetration level in the metropolitan and tier-I cities is relatively higher and accounts for about 35-40%, while in tier-II cities penetration level is about 20%. Over the past year, there has been a rise in demand for RMC due to technological improvements and innovations. The central government is pushing for more infrastructure development as well as completing ongoing projects in a time-bound plan. The government is also focusing on the creation of “smart cities” which would lead to the construction of commercial, residential, and recreational centers, along with public utilities like roads and railways. This will boost the prospects for RMC as a viable alternative to traditional concrete. RMC is also finding better acceptance among most real estate developers in the country, especially in urban areas. Thus, the potential for this segment remains quite large.

In India, there are 71 companies that operate integrated cement production facilities and 36 companies that operate grinding plants, 6 of which do not have integrated capacity. The top 10 cement producers in India are shown in the below table.

With nearly 455 million tonnes of cement production capacity, India is the second largest cement producer in the world. The cement production capacity by the time of 2020 is estimated to touch 550 MT. all India installed capacity was around 480 MT, in September 2018. Of the total capacity, 98 percent lies with the private sector and the rest with the public sector. The cement demand is expected to grow by 7-8 percent in FY19

The housing and real estate sector is the biggest demand driver of cement, accounting for about 65% of the total consumption in India. The other major consumers of cement include public infrastructure at 20% and industrial development at 15%.

Peer Review

Profit and Loss

JK Cement - Balance Sheet

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