JK Cement: Financial overview - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

JK Cement: Financial overview

Dec 31, 2007

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

JK CEMENT Announces Quarterly Results (3QFY21); Net Profit Up 73.2% (Quarterly Result Update)

Feb 10, 2021 | Updated on Feb 10, 2021

For the quarter ended December 2020, JK CEMENT has posted a net profit of Rs 2 bn (up 73.2% YoY). Sales on the other hand came in at Rs 18 bn (up 25.3% YoY). Read on for a complete analysis of JK CEMENT's quarterly results.

SHREE CEMENT Announces Quarterly Results (3QFY21); Net Profit Up 102.0% (Quarterly Result Update)

Feb 1, 2021 | Updated on Feb 1, 2021

For the quarter ended December 2020, SHREE CEMENT has posted a net profit of Rs 6 bn (up 102.0% YoY). Sales on the other hand came in at Rs 33 bn (up 16.2% YoY). Read on for a complete analysis of SHREE CEMENT's quarterly results.

JK CEMENT 2019-20 Annual Report Analysis (Annual Result Update)

Dec 1, 2020 | Updated on Dec 1, 2020

Here's an analysis of the annual report of JK CEMENT for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of JK CEMENT. Also includes updates on the valuation of JK CEMENT.

ACC 2018-19 Annual Report Analysis (Annual Result Update)

Oct 20, 2020 | Updated on Oct 20, 2020

Here's an analysis of the annual report of ACC for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of ACC . Also includes updates on the valuation of ACC .

More Views on News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps (Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Top 5 Stocks Mutual Funds Bought and Sold in January 2021 (Sector Info)

Feb 16, 2021

A look at what India's top equity mutual funds bought and sold in January 2021.

I Would Recommend this Small-cap Stock Over Tesla (Profit Hunter)

Feb 16, 2021

Do you enjoy reading Tesla and Bitcoin stories? Here's a not so famous small-cap stock to profit from the rise of EVs.

Make Rs 5,000 Per Day Trading the Market (Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms