KCP Ltd - undervalued cyclical company


(1.5cr) #82

Cement business, majority of the costs are variable in nature. Hence operating leverage means almost nothing. Jump in volume does not mean a disproportionate jump in profits as costs are variable. But a jump in price on the other hand could have a big impact on bottom line. This is why cement cartels exist. There is no need to increase volumes and cut prices to beat competition as it really does not impact the bottom line much. So always look for rise in prices of cement. While valuing a cement company one must take an EV/EBITDA multiple followed by an EV per ton capacity valaution. You can average the two and come out with a figure. You must also make sure that debt is accounted for while valuing the company. You cannot compare two comapanies with different debt structures. So you consider the D/E ratio in such a case. You must also take into account the region that the company caters to.


(nikhilv) #83

I was going through this report from motilal oswal about heavy engineering orders uptick in future -

http://m.motilaloswal.com/Research-Research-actual/40708/Capital-Goods--Emission-control-equipment-orders-to-finally-kick-start!-

I think KCP is also involved in the same activities -

http://he.kcp.co.in/bs-general-engineering.html

Players mentioned in the MOSL report above are clients of KCP as per the website.

Heavy engineering is not a big chunk of earning but I think as per management commentary and also industry outlook - heavy engineering should pick up in next few months.


(1.5cr) #84

KCP is struggling to get the valuation that it deserves due to the number of businesses under listed company. Sooner or later market will realise and we should see a steep jump in valuation. The key in my eyes is the new cement capacity coming on stream. That should push people to research further on the company. The company is completely under researched. It seems to be a on cyclical uptick. All in all it is business that can touch 200cr in reported net profits over the next 3-4 years. Still cheap at current levels.
Results are coming out soon and I think we should see a wonderful quarter.
Only concern is the price of power. As long as volumes grow and new capacity is on track we should see some more upside over next FY.