Dec 27, 2007|
JK Cement: A brief overview
Cement is a product of high volumes and therefore, transporting it over large distances can prove to be uneconomical. This makes it imperative for the plants to be located near markets. In some cases, the plants also tend to be located near the limestone reserves (a major raw material for cement) from where the cement is transported to nearby states. The oversupply situation is largely witnessed in the Southern and Northern regions owing to proximity to raw materials. However, with the boom in the housing sector and infrastructure projects as planned by the government, Northern region in line with the industry is witnessing demand supply equilibrium.
Cement being a cyclical industry goes through phases of ups and downs, and accordingly, companies' realisations are affected. Even in a downturn, companies those are cost effective, will sustain. The cyclical trough in the late-1990s had a severe impact on the industry financials and many companies were referred to the BIFR. However, cement prices have firmed up during the last few years due to improvement in the demand-supply position, increasing consolidation in the industry and the government's thrust on infrastructure development in the country.
JK Cement is a regional player situated in Northern region with almost 30 years of experience and has turned around impressively post a restructuring programme. JK Cement was incorporated as an ongoing concern after it acquired cement division assets of JK Synthetics. In this article, we give an insight how the company has evolved since inception. And in series of articles, we will take a look at its past financial performance and the way forward.
About the company
JK Cement was incorporated by acquiring the assets of the cement division of JK Synthetics in November 04 and is a part of the JK group. It is an affiliate of the J.K. Organization, which was founded by Lala Kamlapat Singhania. The J.K. Organization is an association of industrial and commercial companies and has operations in a broad number of industries. The company manufactures grey cement and white cement. The company has two grey cement plants at Nimbahera and Mangrol with an aggregate installed capacity of 4 MT and is one of the top five producers of grey cement in the northern region. It is also the second largest white cement manufacturer in India by production capacity. The company's white cement manufacturing facility is situated at Gotan with an annual installed capacity of 0.4 MT. While the grey cement is primarily sold in the northern India market, the white cement enjoys demand in the export market including countries like South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, UAE and Nepal.
How has it evolved since inceptionů
The company commenced its cement operations with a single kiln with a production capacity of 0.3 million tonnes in May 1975. Its first plant was located at Nimbahera in the state of Rajasthan. Over a period of time, the company has gradually increased its cement manufacturing capacity.
In 1982, the company's production capacity stood at 0.42 MT, which was increased to 1.54 MT in 1988 as the company added a precalciner with a capacity of 0.4 MT. The company established its white cement plant in 1984 with a capacity of 50,000 tonnes and installed a captive thermal power plant in 1987 to support its energy requirements.
Since inception till 1997 the company continuously upgraded and modified its capacity. However, 1997 to 2004 was a financially distressed period for the company. JK Synthetics was involved in manufacturing man-made fibers and cement. However, it incurred heavy losses and its net worth was eroded. Subsequently, it de-merged its cement division into a new company, JK Cement. It was referred to BIFR as the company was unable to arrange working capital loans for its operations and on account of its inability to build low cost captive power sources, its operations were impacted. Moreover, during this period there was supply overhang, which must have further exerted pressure on margins.
JK Cement was incorporated by acquiring the assets of the cement division of JK Synthetics in November 04. Following the separation, the company was sanctioned a working capital loan of Rs. 650 m. The company continued to implement modifications to each of its kilns, which increased its aggregate capacity at Nimbahera to 2.8 MT in FY06.
The company has acquired Nihon Nirman from Industrial Development Bank of India for Rs 420 m. The acquisition has increased the company's grey cement production capacity to 4.3 MT. The grey cement, to be produced from Nihon Nirman, will be sold in the northern markets.
The company came up with initial public offering in FY06 to raise funds to the tune of Rs 3 bn to increase the production capacities of its grey cement facility at Nimbahera and white cement plant at Gotan along with the setting up of captive thermal power plants and heat recovery systems.
On the demand front, we expect the northern region to grow in line with the industry. North India is expected to witness demand growth rate of over 7%, driven in part by the forthcoming commonwealth games, which will result in increased spending on infrastructure by the government. However, with the growth in the sector and waning demand supply gap, producers have lined up capacity expansion plans either by brownfield or greenfield expansion route.
The company is also on an expansion spree and is setting up a captive power plant of 7.5 MW at Gotan for captive use at an estimated cost of Rs 400 m. Its expansion plans also include setting up of a 3 MT plant in Karnataka with an estimated project cost of Rs 9 bn and which is expected to be operational by FY09.
However, once the lined up capacities come on stream, the industry is expected to face excess supply situation. Thus, while the near term scenario is favourable, from a long-term standpoint, risks outweigh rewards.
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