JK Cement: Demand supports Volume Growth

JK Cement Ltd is an affiliate of the multi-disciplinary industrial conglomerate JK Organization, found by Lala Kamlapat Singhania. For over four decades, JK Cement partnered India’s multi-sectoral infrastructure needs on the strength of its product excellence, customer orientation and technology leadership.

The company grew into the 3rd largest White Cement manufacturer in the world with 1.20 MnTPA capacity (including 0.6 MnTPA at Fujairah, U.A.E). Besides, it is one of the two largest producers of White Cement and Wall Putty in India.

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(A) Market Overview

India accounted for over 8% of the global installed capacity as of 2019. India’s overall cement production capacity is nearly 545 million tonnes (MT) in FY20. Of the total capacity, 98% lies with the private sector and the rest with public sector. In addition, the top 20 companies account for around 70% of the total cement production in India. 

India is the world’s 2nd largest cement market, both in production and consumption. Most importantly supported by high level of activity going on in real estate and high Government spending on smart cities & urban infrastructure.

Indian Cement industry consumption & production growth

(i) Demand of Cement in India by Various Sectors

Indian Cement industry consumption & production growth

(ii) Export and Import of cement

Indian Cement industry export and import growth

(iii) Geographically Installed Capacity of Cement in India

Indian Cement industry region wise installed capacity

North and South region form Key Markets for various cement companies.

(iv) Major Cement Players in India

market share of major players of indian cement industry
JK cement ltd final logo

(B) Family History of JK Cement

JK Cement Stock research with details of family structure

(C) Executive Board of Directors

(i) Smt. Sushila Devi Singhania – Chairperson – Non Executive Non Independent Director

Graduated in Arts, Sushila Devi Singhania is wife of late Dr. Gaur Hari Singhania and mother of late Mr. Yadupati Singhania.

She is also Board Member of Yadu International Ltd. and GH Securities Pvt Ltd. Moreover, she actively associates with programmes for welfare and upliftment of economically weaker sections, children and women and also with religious activities.

(ii) Raghavpat Singhania – Managing Director

He is nephew of late Mr. Yadupati Singhania. Mr. Singhania attended the Executive Leadership Programme at INSEAD, Fontainebleau, and is a graduate from Sheffield Hallam University, United Kingdom. Later he joined JK Cement Ltd. in the year 2007 as Special Executive and received training under industry stalwart Late Yadupati Singhania. He is also the Dy. Managing Director of JK Cement Works, (Fujairah) FZC, which is a subsidiary of JK Cement Ltd. in the UAE.

(iv) Madhavkrishna Singhanai – Deputy MD and CEO

He is nephew of late Mr. Yadupati Singhania. Mr. Madhavkrishna Singhania completed his Bachelors in Electrical and Computer Engineering from Carnegie Mellon University, USA. After that he joined JK Cement Ltd. in early 2010 and is currently overseeing Grey Cement business of the Company including project expansions and serving on the CII Delhi State and CII Northern Region Council.

(v) A.K Saraogi – Deputy MD and CEO

He holds a Bachelor of Arts (Honours) degree in Economics from Sriram College of Commerce, Delhi University and in addition a Bachelor of Laws degree from Kanpur University, Kanpur. Mr. A.K. Saraogi has over 40 years of experience in the field of Finance and Commercial matters.

He is also serving as a Council member of Merchant Chamber of UP, Director of Yadu International Ltd. and Jaykaycem (Central) Ltd.

(D) Group Structure of JK Cement

JK Cement stock research update with details of group structure

The subsidiaries & step down subsidiaries contribute -15.42% to the consolidates profit of JK Cement Ltd.

(E) Shareholding Pattern

JK Cement stock research with details of shareholding pattern
JK Cement stock research with details of major shareholders
  • Under promoters holding, major shareholding is with Yadu International Ltd which is family owned company.
  • Directors of Yadu International Limited are Yadupati Singhania, Anil Kumar Agrawal, Sushila Devi Singhania, Kavita Yadupati Singhania, Ajay Kumar Saraogi.
  • Under public holding, Mutual Funds hold 19.94% of the total shares.
  • On the other hand Foreign Portfolio Investors hold 15.41% of the total shares of the company.

(F) JK Cement Revenue Mix

JK Cement stock research with understanding of revenue mix of white & grey cement

(G) Product Segments

JK Cement is engaged in manufacturing of grey and white cement which also includes wall putty. The Company also provides various varities of Grey and White cement. Moreover It is one of the two largest producers of White Cement and Wall Putty in India.

(i) Grey Cement Segment

JK Super Cement OPC

The Company produces Ordinary Portland Cement (OPC) which is certainly much in demand for its extra strength and fineness. Above all It is ideal for all kinds of construction jobs and concrete components production.

JK Super Cement PPC

JK Super Cement is one of the premium grey cement brands in the Country, available as application friendly Portland Pozzolana Cement (PPC). The product is much in demand by the retail as well as the institutional segment.

JK Super Cement PSC

Portland Slag Cement (PSC) is an intimately interground mixture of Portland Cement Clinker & granulated slag (Non-metallic) which is a by product of Iron Blast furnace from steel plant. It is also termed as Portland Slag Cement. It is mainly used in special structure like pre-stressed concrete.

JK Super Strong is a premium product, specially designed for concrete applications. JK Super Strong has been manufactured with MPET – a new breakthrough technology in cement production & hence improves performance of cement.

JK Super Strong Weather Shield Cement is a water repellent cement having an integral water repellent property at the cement particle level. This cement can be used in all applications such as foundations, masonry & concrete works.

(ii) White Cement Segment

JK White Cement is the preferred brand for silky smooth exterior/interior walls and ceilings, mosaic tiles, terrazzo flooring and white cement based value-added products.

JK Cement WallMaxX is a white cement based putty. It provides high durability base coat, which resists flaking and also gives additional strength to the mortar plaster.

TileMaxX

Wall and Floor Adhesive TileMaxX is a polymer modified, high strength grey cement based adhesive that is suitable for application of ceramic tiles on walls and floors. It is also suitable for application of vitrified tiles on floors.

Premium Multipurpose Adhesive TileMaxX is a grey cement based tile adhesive with enhanced ‘hi-bond’ polymers, suitable for application of large format vitrified tiles in interiors as well as exteriors. It is also suitable for tile on tile application.

Premium Universal White Adhesive TileMaxX is a high performance, polymer modified white cement based tile adhesive, with ‘pro-fix technology’. This product is ideal for marble slabs, large format vitrified tiles, glass mosaic and small natural stones in interiors and exteriors because of its high tensile and shear strength properties.

JK Cement WhiteMaxX is a white Portland cement produced with unique raw material and state-of-the-art technology. As compared to ordinary lime wash, JK Cement WhiteMaxX gives longer life to paint and superior finish to the surface.

(iii) Value Added Products

JK PrimaxX is a white cement based primer ideal as an undercoat for exterior cementitious surfaces, which enhances the quality and coverage of paints for a long-lasting, smooth and beautiful finish.

JK Cement Ltd. presents its latest offering – JK Cement GypsoMaxX, a premium gypsum plaster made from the purest form of natural gypsum.

JK Cement ShieldMaxX is a white cement based Universal Waterproof Putty. Its ready to use property makes it suitable for both interior and exterior surfaces.

(H) Story in Financial Parameters

(i) Net Sales of JK Cement

JK Cement growth of net sales over last 10 years
  • Net Sales of JK cement grew at a CAGR of 11% over last 10 years.
  • FY12 witnessed increase in net sales by 22% on account of better volumes. White cement achieved 7% increase in volume & Wall Putty achieved 27% increase in volume over previous year.
  • FY15 sales grew by 22%. The Company recorded an 18% increase in Grey Cement production volume over last year. Secondly, White Cement achieved a 3% increase in production volume and Wall Putty achieved 18 % increase in production volume over preceding year. This is on account of expansion of manufacturing capacity.
  • In FY18, net sales grew by 21%. Grey cement registered a growth of 16% in production volumes over the last year. White cement registered a growth of 2% y-o-y in production volumes, whereas the value-added product, wall putty grew by 14% on y-o-y basis.

(ii) Profit After Tax

JK Cement profit growth over last 10 years

PAT growth is remarkable for the company for over last 4 years. In FY20 also, PAT jumped by 83%. The power & fuel cost as well as advertisement cost as a % of net sales reduced for FY20.

(iii) Free Cash Flow

JK Cement cash growth over last 10 years

(iv) Return on Equity

JK Cement return on income growth over last 10 years

(v) Return on Capital Employed

JK Cement return on capital employed growth over last 10 years

(vi) Debt to Equity Ratio of JK Cement

JK Cement stock research update with details of debt equity structure

(vii) Profit After Tax Margin

JK Cement margin growth over last 10 years

(I) Top 3 Costs for the company

JK Cement stock research with details of cost structure analysis

Raw materials, power & fuel and selling/distribution expenses form the major costs of the company.

Raw Material Cost:

  • Limestone is the basic raw material for cement manufacturing. It is a fast-depleting natural resource, owing to the growing demand for cement. Other raw materials like red ochre and gypsum are also natural resources with limited availability. Hence, the only alternative is to use bauxite/iron ore and synthetic gypsum as replacement. The use of blended cement is cost effective and environment-friendly as it uses by-products of thermal power plants and steel plants, such as fly ash and slag.
  • JK Cement’s raw material cost as a % of net sales remained stable over the years. Moreover, there is a fall in % cost post March 2017.

Power & Fuel:

  • The power & fuel cost as a % of net sales reduced gradually for JK Cement by FY17 from FY11.
  • Later the cost increased because of levy of clean energy cess of Rs 200 per tonne on coal/lignite in budget of 2016-17. Moreover, cost of pet coke increased. In addition, ban on pet coke for power plant impacted captive power-generation costs by more than 20%.
  • In FY20 Lower pet coke and crude prices resulted in comparatively lower power and fuel costs.

Selling & Distribution:

  • Over last 10 years, selling & Distribution cost as a % of net sales remained in same range 24-26%.

(J) JK Cement Manufacturing Capacity & Expansion

JK Cement grows with volume expansion with growth in demand

In the year 1974 JK Cement started with a capacity of 0.3 million tonnes at Nimbahera in Rajasthan. Today the Company has an installed grey cement capacity of 14 million tonnes, with plants located at Rajasthan, Karnataka, Haryana and UP.

Capacity additions over last few years

  • FY 15
    • The company expanded its manufacturing capacity of grey cement from 7.5 to 10.5 MTPA in FY15.
    • Company’s cement capacity also expanded by 3.0 Mntpa in North India.
    • Moreover, JK Cement completed the commissioning of a split grinding unit of 1.5 Mntpa in Jharli, Haryana, and brownfield expansion of 1.5 Mntpa integrated unit at Mangrol, Rajasthan.
  • FY 16
    • Set up a 0.20 MnTPA Wall Putty plant in Katni, Madhya Pradesh.
  • FY 18
    • Initiated work on 4.2 MnTPA brownfield expansion for Grey Cement at Mangrol, Rajasthan, which is ~40% of existing capacity.
    • JK Cement further committed to expand grey cement capacity to 15 MTPA by FY20 with outlay of Rs 2000 crore.
  • FY 19
    • Company had total capacity of 0.60 MnTPA and 0.90 MnTPA for white cement and wall putty.
  • FY 20
    • Targeted completion of Phase 1 expansion of 4.2 MnTPA Grey Cement.
    • The grey cement capacity reached above 14 MTPA.
    • On the other hand, total white cement capacity is 1.2 MTPA.

Funds for expansion

  • Company funds all the expansion plans with a mix of internal accruals as well as raise of debt/loans.
  • Free Cash flow of the company remained positive over the years except for FY14 due to increase in capex for capacity expansion.

(K) Management Discussion Highlights till December 2020

(i) Capex Plan of JK Cement

  • The management is planning to set up a 3.5-4 mn mt greenfield plant at Panna (Madhya Pradesh). Cost of this plant will be approx. $90- $100/ton. The management spent Rs.1.6 bn on acquiring land and will spend another Rs.750-800mn by March 2021 to acquire more land. Also, they need to spend Rs.1bn to acquire mining land during the project period. The plant will be at the subsidiary level and will be funded by internal accruals and debt.
  • In October 2020, the company commissioned 0.7mn mt Balasinor unit (completing the 4.2mn mt capacity expansion) and it also commissioned a 3 lakh tons per annum of white cement based wall putty at its Katni unit.
  • With the coming up of new capacities, the company has the opportunity to capture further market share in its key market of Northern India and also gain in the lucrative central India market.

(iii) Growth in White Business

  • White cement and wall putty business contribute around 30% of overall revenue with high EBITDA margin ranging between 26-28%. Wall Putty expansion at Katni will be taken up in 2020-21. The expansion of 2 Lacs tonnes per annum would increase the Wall Putty capacity to 11 Lacs tonnes per annum.
  • Also, Management expects white cement business to grow at a CAGR of 10% over the period FY21E-23E. This will help in blended realization to improve from Rs.5597/tonne in FY21E to Rs.5750/tonne in FY23E.
  • The management reiterated its stance that it hasn’t lost any market share and continues to be the largest producer of wall putty with a 1.2mn mt capacity.

(iv) Increase in Demand

  • Volumes grew by around 23% YoY for quarter ended 31 Dec 2020 primarily due to new capacity addition which helped company gain in market shares along with increase in demand. Increase in volumes is primarily in Northern market. Also, company entered into new markets through its grinding unit in Aligarh.
  • Capacity Utilization in South is 55-60% and for North it is expected to be 70-75% ahead.

(v) International Operations

  • UAE plant had a good quarter with orders coming up from Australia. However, the plant continues to face some issues related to covid and will have to wait for another 2-3 months before the management takes any decision on the future of it.

(vi) New Products launch by JK Cement

  • Management expands its product portfolio with value added Wall Putty and recently launched Primaxx. Expanded capacity, extensive distribution network, and robust technical know-how as a result which have made the Company one of India’s most reliable cement brand.
  • Moreover, Management’s focus on higher realisations and expanded portfolio of value-added products ensured sustained profitability.

(vii) Investment Scenario

  • The company is aiming to further increase its production capacity to reach 18 MTPA by 2022.

(L) Changes in Management After demise of Mr. Yadupati Singhania, after 31 August 2020

  • Subsequently Ms. Sushila Singhania was appointed as chairperson of the company with immediate effect.
  • Mrs. Kavita Y Singhania (wife of Yadupati Singhnia) resigned with immediate effect, from the Directorship of the Company for personal reasons.
  • Mr. Raghavpat Singhania was re designated from Executive Director (Corp. & White Cement) subsequently appointed as Managing Director.
  • Subsequently Mr. Madhavkrishna Singhania re designated from Executive Director (Grey Cement) and appointed as Dy Managing Director and CEO.
  • Mr. Ajay Kumar Saraogi re designated from Executive Director and CFO, subsequently appointed as Dy Managing Director and CFO.

(M) Growth Opportunities

(i) Growing exposure to North is a significant positive

The recent expansion plans by the company bring two significant advantages to the company-

  • Costs would be lower as 80% of grey cement capacity is now fuel-efficient.
  • It would strengthen its position in North and Central, the most attractive regions in the country.

(ii) Putty capacity expansion provides growth visibility

The Company has recently expanded its wall putty capacity in Katni by 0.3 mtpa, increasing the overall putty capacity to 1.2 mtpa. White cement and putty currently contribute around one-third to overall EBITDA. This is a high-margin business and has been growing at over 10% CAGR in the past few years.

(iii) Public Infrastructure

  • As per Union Budget 2019-20, the Government is expected to upgrade 1,25,000 kms of road length over the next five years.
  • Government of India’s push with Smart Cities Mission and AMRUT.
  • Strong economic growth is expected to lead to growth of the industrial sector and in turn increase in demand in the long run.

(iv) Housing and Real Estate

  • Government initiatives like Housing for All will push demand in the sector.
  • Secondly, Real estate market in India is expected to reach US$ 1 trillion by 2023 and attract investment worth Rs. 46,000 crore (US$ 6.5 billion) in 2020.
  • Moreover, Strong growth in rural housing and low-cost housing to amplify demand.

(N) Risk and Concern

(i) Regulatory Compliance

The industry factors rapid changes in emission norms in relation to dust, NOx and SOx. Non-compliance of same thus will lead to imposition of penalty and loss of brand reputation. For monitoring and to comply with new standards issued by Ministry of Environment and Forest & Climate change companies make substantial capital expenditure.

(ii) Raw Material

The cement industry is dependent on existing natural resources for instance limestone or other minerals for its sustenance. Thus the availability of raw material is certainly important for making finished products and the price of raw material directly affect the price of finished products.

(iii) Power & Fuel

Power and Fuel cost is almost 25% of operating cost of the company hence it affects the cost of finished products. Thus optimum utilisation of these resources is important as any wastage in these will result to increase in cost of cement.

(iv) Logistic Risk

Logistic cost directly affects the cost of cement as transportation is necessary in raw material intensive industries hence it affects the price of finished products. Increasing logistic cost put pressure on operational profitability.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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