Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
JK Cement: Financial overview - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 31, 2007

    JK Cement: Financial overview

    In the previous articles, we made an attempt to portray JK Cement's journey and analysed it on the basis of five-force model of Michael Porter. Now in this article, let us take a look at numbers of the past two to three years and what do they indicate.

    JK Cement was incorporated in November 04 by acquiring the assets of the cement division of JK Synthetics. Following the separation, the company was sanctioned a working capital loan of Rs. 650 m. The company continued to implement modifications to its kilns, outlined capacity expansion plans and set up captive power plants to reduce cost pressure on margins.

    Glance at operations: The company manufactures both grey and white cement. Today, the company is one of the largest cement manufacturers in Northern India and also the second largest white cement manufacturer in India by production capacity. However, in recent past white cement segment is facing major threats from competing products, thereby threatening the very existence of this industry. Cement paint industry is feeling the heat due to the entry of the new generation polymer based exterior paints. The fact that this segment is less crowded compared to grey segment and increased demand for the commodity resulted in the white cement division operating at capacity utilisation in the range of 60% to 65% in the past 2 years. However, considering the robust demand for the grey cement, the company's grey cement division continued to operate at almost 100% capacity utilization levels.

    What do the numbers say? Owing to upturn in the cement cycle and the restructuring programme that the company underwent, net sales have grown at a CAGR of almost 94% in the past 2 years while operating profits have reported whopping growth of 194% during the same period under consideration. As mentioned earlier, demand for the commodity by the end user industries has resulted in improved sales and realisations. Sale is a factor of production into price. While the company reported almost 60% CAGR in total production and total sales (total= grey + white), realisation improved by almost 21% during the same period resulting into such an impressive topline growth.

    Particulars FY05 FY06 FY07
    Sales (Rs m) 3,294 8,737 12,333
    % growth N.A. 165.2% 41.2%
    % OPM 11.6% 15.1% 26.7%
    % NPM 1.9% 3.7% 14.5%
    Apart from improved realisations, the company was able to improve its overall physical performance, which has helped expand margins. The 8-fold growth in operating profits was achieved as the operating costs grew at a slower place (CAGR of 76% in past 2 years) compared to topline growth. The company was able to control its cost by improving blending ratio, increased capacity utilization, improved realisations and continuous focus on cost reduction.

    The company's power cost per tonne basis almost witnessed flat growth, while raw material costs and selling and distribution expenses on a cost per tonne basis witnessed 15% and 17% CAGR respectively. The increase in costs can be attributed to the rising freight charges and coal prices (another key input).

    Way forward… Thus, owing to these reasons the company was able to report impressive numbers. Currently the company is going through a vital stage. The company has chalked out huge expansion plans to improve and/or maintain its market share, de-risk revenue by diversifying its presence, setting up 3MT plant in south, and reduce costs by setting up captive power plants. Geographical diversification is a useful strategy for a commodity business like cement. However, the company has planned to set a greenfiled plant in the southern region, which has historically witnessed excess supply.

    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 Cement sector and waning demand supply gap, producers have lined up capacity expansion plans either by brownfield or greenfield expansion route.

    While the benefits of restructuring have duly kicked in, it must be borne in mind that the realisations are at all time highs. At the current price of Rs 224, the stock is trading at fair valuation of US$ 120 on the enterprise value per tonne (EV/tonne) basis as per FY07 numbers.



    Equitymaster requests your view! Post a comment on "JK Cement: Financial overview". Click here!


    More Views on News

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    UltraTech: One of the Weakest Quarters in Years (Quarterly Results Update - Detailed)

    May 18, 2017

    Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms