yes they have a captive limestone mine in Mukthyala. Past concalls I havent found in there website
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You can go to research bytes to find past con callsā¦
Genuine query- A lot of investors on this thread have mentioned that KCPās current market capitalisation equals the value of their cement division. The remaining businesses are available for no cost. In my limited understanding, KCP is a relatively small producer with around 430 crore kilogram of cement production capacity. Thereās ample supply of cement in the market. For a bigger company it makes sense to acquire a plant instead of constructing it from scratch. However, would a bigger player actually be willing to pay for KCPās cement capacity? Would bigger players be interested? The price of 80$ per tonne capacity may be only for the larger acquisitions. Would it be correct to extrapolate it and apply it here?
If the cement division isnāt considered acquisition worthy it may not be able to attain a much higher market capitalisation. Itās entirely possible that on the books itās valuable but in reality thereās no buyer or if there is, the buying price offered is significantly lower than our expectations. And it sure seems that their cement doesnāt command a premium over others. Definitely seems like they donāt possess pricing power.
80$ per ton is low. Recent deals were concluded at far higher numbers. Even assuming 80$ per ton they are cheap. Assuming 80$ per ton and taking a 4.3m ton capacity which is expected by FY19 they should be valued at EV of some 2000cr. Add to that the other businesses and growing demand for cement in APT. KCP have been showing volume growth this FY. They can also go in for further brownfield expansion if needed.
Deals may have taken place at 80$ per tonne. But,the question is for what capacity?
We must acknowledge that in the overall Indian cement market KCP is a relatively small player. There are many small cement plants in the country. Larger cement companies may not be interested in acquiring multiple smaller capacitities. Thatās precisely what we should be trying to find out. A deal may have taken place but whatās pertinent is to note itās capacity. If itās comparable we can extrapolate the price of 80$ per tonne. If thereās no buyer itās worth nothing.
And, apart from their cement division thereās not much allure to the company.
One could expect around 110-140$ per tonā¦so 80$ is very cheap and plausible for a small cement company like KCP.
Youāre not getting my point. Iām in agreement that 110$ per tonne is common. But, for what capacity would the buyer be willing to pay such prices.
Iāll explain what Iāve been trying to say:
Say thereās a company called Shreys Cement Ltd. I have a capacity of 30 MTPA. Iām desirous of expanding my capacity by another 10 MTPA. I could, in theory, acquire 10 plants of 1 MTPA capacity, 5 plants of 2 MTPA capacity and so on.
Now, what is more convenient for me.
Buying 1 plant of 10 MTPA capacity or buying 10 plants of 1 MTPA capacity. Obviously acquiring 1 plant is a much better proposition. Hence, Iām willing to pay top dollar for it. For the ease, for the convenience. Now, only the massive cement players will go for such large scale expansions. KCP is a relatively small producer of cement. To expand my capacity meaningfully Iād have to acquire multiple plants of KCPās capacity to attain my required capacity. Would I be willing to do that? If not, the plant is worth nothing.
What Iām asking you is- Has there been any acquisition of a plant whose capacity is in congruence with KCPās. Letās consider acquisitions of this size. Not some behemoth acquisition. Price is what the buyer is willing to pay. If thereās no buyer it probably is worthless. So, letās try to find out acquisitions of plants in the range of 4-5 MTPA.
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you can take a look at sagar cements from the same region. As you may already know that cement is a local play, as logistics is a big cost. We have taken 80$ per ton as it is on the lower side. KCP dont have any plans of selling their cement business. They have a sugar business in Vietnam that generates decent profits in addition to their engineering, Five cail JV and hotel that is a drag on profitability. You cannot say the plant is worth nothing as the cement business does generate profits.
I did have a look at Sagar cements as suggested by you. Most of these smaller cement companies have had such mediocre performances in the past few years. Maybe due to slowdown in construction activity. Now, that itās expected that construction will finally move in the right direction these companies may be benefitted. May be not. Only time will tell if all most orders will be secured by the lager players or the smaller ones as well. Frankly, looking at their financialās thereās hardly anything impressive. It seems to me to be an asset play. An asset play on the cement plant. Now, only time will tell if these valuations based on their assets will sustain or not. All Iām saying is that the plant is worth anything at all only if larger players are interested in smaller plants. If not, I find it hard to believe that with such erratic performance financially it can sustain these levels.
Sugar business might nor generate profit in future given the fact that Vietnames government has to remove import duty from sugar according to a pact with ASEAN. In such a scenario importing sugar from Thailand is much cheaper because price of sugarcane are less in thailand. And as a result sugar business in Vietnam can get adversely effected.
Yes it is a play on infra/cement demand picking up.Volumes have been growing consistently this FY. Capacity is not even close to full utilisation, so as demand picks up you should be able to see better numbersā¦ Time will tell with every investment haha!
True. Since you believe itās undervalued what in your opinion is its fair value?
Relevant articles published in early 2017. Im not aware though, any M&A took place based on this underlying value from these small capacity cement plants with larger players?
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I think the point you are making is on assumption of KCP selling its cement plant.The price we are talking about is the replacement cost.Itās a way to get close to the value of cement plant.I do not think that KCP has a broken balance sheet that it has to put their cement plant in line for a deal.If you see the cement plant buyouts and takeovers happening, most of them were gasping for breath because of enormous debt.Cement revenue is growing healthily - margin might get impacted however demand seems to be strong.Also, in my case for KCP I am trying to protect downside which I see is less.Anything from other businesses is cherry on cake.Also management is good - they are less noisy, ethical and values in place.
Looks like KCPās capex is right on time.
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So results are out -
The overall topline is flattish.
Positives -
- Engineering has become profitable earning 4 crores for the first time in more than 2-3 years which management indicated in last concall although the revenue is on the lower side.
- Cement sales are still strong - indicating good demand.
- Hotel loses reduced - revenue flat.
- Interest outgo reduces.
Negatives -
- Margins reduces drastically - Looks like fuel expenses and freight expenses are hurting cement and especially power.Power infact has become loss making.
Although the cement sales has increased, the marging reduced by 50% almost. -
| Mar-18 | cement | engineering | hotel | power | total |
|---|---|---|---|---|---|
| sales | 249 | 19 | 4.3 | 22 | 294 |
| Profit | 17 | 4 | -1.4 | -4.2 | 15.4 |
| Margin | 6.827309237 | 21.05263158 | -32.55813953 | -19.09090909 | 5.238095238 |
Amount in Crores.
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Overall - YOY Revenue growth is 10% and Net profit growth is 18%.
Vietnam Sugar Profit has grown 14% from 66 crores to 77 crores annually.
Company has declared a dividend of 1 Rs.
Total Sales including vietnam sugar is now 1672 crores annually.
I am interested to know low margin for cement.I pulled out data of last few years and historically March has been the lowest margin quarter for Cement.But this one is the lowest of all with only 6.82%.
The real question is whether the fuel cost or fright cost is here to stay or is it a phase to pass? If the company can not sustain its margins then thatās a big concern.
**Electricity Duty on captive power generation levied by the State amounting to Rs.87llacs was contested by the Company in Honāble Supreme Court. Honāble Supreme Court through interim order directed the Company to pay part amount of
Rs. 5231acs. Pursuant to this, the Company has provided Rs. 871lacs and reported the same as an Exceptional Item, pending the final decision of the Honāble Supreme Court.
**The Supreme court, vide its order dated 13-10-2017, has ruled that the contribution to District Mineral Fund(DMF) for limestone under the Mines( Development and Regulation) Amendment Act,2015 shall be applicable from 17-9-2015
instead of 12-1-2015. Accordingly, the Company has reversed the provision amounting to Rs. 2.93 Crores in the financial results during the quarter ended 31.12.2017.
Declining profit margins is a big concern. Can anyone who is also following the business throw some light on it? Is it a temporary phase or is it here to stay?