JK Cement Ltd - 135.00 Rs
JK Cement Ltd (JKCL), an affiliate of the well known JK Organization was formed in November 2004 as a result of slump sale of cement division of JK Synthetics Limited (JKSL), a BIFR registered sick company. Since then JKCL made a smart turnaround with lower cost of production by setting up captive power plant and today its among the largest grey cement manufacturers in North India and the second largest manufacturer of white cement in the country. It manufactures ordinary portland cement (OPC) and portland pozzolana cement (PPC) and markets them under its own brand names such as JK Cement, Sarvashaktiman, JK Super, JK White and Camel which are very popular brands. PPC’s margins per ton are generally higher compared to OPC as each ton of PPC requires approximately 0.75 tons of clinker, 0.05 tons of gypsum and 0.20 tons of fly ash. On the other hand each ton of OPC requires approximately 0.95 metric tons of clinker and approximately 0.05 metric tons of gypsum. JK Water Proof & JK Wall Putty are other premium products being marketed by the company. Incidentally, company also exports white cement to a number of countries, including South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, United Arab Emirates and Nepal.
JKCL has three manufacturing plants in Rajasthan which are producing cement since 1975. Two plants at Nimbahera and Mangro are producing grey cement and one at Gotan is manufacturing white cement. Presently company has a combined installed capacity of 4 million tonne of grey cement and 0.4 million tonne of white cement. Of late company has acquired Nihon Nirmaan facility from IDBI for Rs 42 crore and is now expecting to start the production of grey cement soon with an initial capacity of 0.40 million tonne which will enhance the total cement manufacturing capacity of company to 4.4 million tonne. Moreover, company has successfully installed a total of 43MW captive power generation facilities consisting of 13.2 MW under waste heat recovery system, 20 MW under pet coke based thermal plant and 10 MW coal-fired thermal plant. This has led to substantial saving of power cost to the company in addition to generating some revenue thru carbon credit. On the other hand, JKCL has access to large reserves of high quality limestone for both grey and white cement operations and that too within close proximity to its plant.
To maintain its growth momentum and capture new markets, JKCL has formed a wholly owned subsidiary called Jaykaycem Ltd which is setting up 3 million tonne Greenfield grey cement plant with split grinding unit in the state of Karnataka. It will have 2.25 million tonne clinker capacity accompanied by a 40MW captive power unit and will primarily produce blended (PPC) cement. This 1000 cr project is being funded thru a debt of 525 cr and balance by internal accrual and is expected to become operational by mid 2009. Further, company is contemplating to set up a grey cement plant at Fujairah in the UAE at an estimated cost of Rs 1,400 crore. The company has already entered into a 90:10 joint venture agreement with the Fujairah government, as per which JK Cement will be holding a 90% stake in the joint venture.
Fundamentally, JKCL is doing satisfactorily and has recorded 20% growth in sales to Rs 1458 cr and 50% increase in PAT to Rs 265 cr. The sharp improvement in bottomline is due to tax benefit availed by the company under Sec 80IA and thus lower tax cost for FY08. Hence it posted an EPS of Rs 38 on equity of Rs 69.90 cr and declared 50% dividend which gives a yield of nearly 4% at CMP. Couple of weeks back JKCL decided to merge JayKaycem Ltd with itself which will just an accounting procedure - being it a wholly owned subsidiary. With rising input cost and anticipated fall in cement prices, JKCL is expected to clock a turnover of Rs 1500 cr and profit of Rs 225 cr on conservative basis i.e. EPS of Rs 32 on current equity. Despite this, at a modest discounting by 6x times, scrip can shoot up to Rs 200 in 12~15 months.
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