NCL Industries (CMP: Rs. 269, MCap: 1215 cr)
About the Company
NCL, incorporated in 1979 and based at Hyderabad, manufactures different varieties of cement, cement particle boards and Ready-mix concrete under the brand name “Nagarjuna”. The cement plant was established in the year 1984 with the capacity of 1800 tpd Line-I. Line-II was installed and commissioned in April 2010 with the capacity of 3000 tpd. Line-III was installed and commissioned in March 2018 with the capacity of 3000 tpd. Present Clinker capacity as on 31.03.2020 is 7800 TPD (2.6 MTPA) and Cement manufacturing capacity is 6120 TPD (2.0 MTPA). Company also has environmental clearance for 10.25 MW WHR Power Plant, the project is under execution with total capex of Rs. 87 cr. Company has captive Limestone mines which are at a distance of 2 km and 6 km from the plant. Company’s manufacturing process is explained in very detailed form on Page 16 of Environment Audit Report FY 2019-20.
Company has five divisions Cement, Boards, Ready Mix Concrete, Doors and Energy. Majority of company’s sale (86% in FY21) and EBIT (97% in FY21) comes from Cement division. The Readymade Doors division commenced its commercial operations in December 2019. For Door division NCL Industries has collaborated with AGT, a global manufacturer with advanced technology in wood industry, based in Turkey.
Valuations & Key Points
- With a debt of Rs. 266 cr and cash equivalents of Rs. 71 cr as on 31.03.2021 company has EV of Rs. 1410 cr. Company has EBITDA of Rs. 282 cr in FY21. Company is available at EV/EBITDA of 5 times. Other small and mid sized cement players like Birla Corp, Heidelberg
- and Shree Digvijay are all available at more than 10 times based on FY21 results.
- The consortium of NCL Industries and NCL Buildtek Ltd has recently received Letter of Acceptance (LoA) from Andhra Pradesh govt for Door Frames. Total order value is Rs. 1863 cr. NCL Industries has 50% share in the consortium. Company did sale of Rs. 5 cr in Q1FY22 from Door division. Incremental sales from this division in next few years could be meaningful.
- Setting up new additional grinding unit that is a greenfield project in Vizag with capacity of 6.6 lakh tons. And recently, taken up one more grinding facility at the parent plant. They have a total capacity of 2.7 million tonnes per annum, and with the expansion, this will go up to 3.6 million tonnes per annum in the next two years. With increase in cash flows in recent years, management is also getting aggressive. They did capex of Rs. 350 in FY18, they setup a Door division in FY20 and now have planned a Rs. 300 cr capex for next 2 years.
- Measure are being taken by the management to improve the efficiency which will further improve the EBITDA per tonne of the company. The new 10.25 MW WHR recovery plant will save power cost by Rs. 30 cr p.a. Replacing Ball Mills with Vertical Roll Mills to have better energy efficiencies.
Key Risks
- Cyclicality in the cement industry and CDR history of the company: Demand and supply dynamics determine the fortunes of the company mostly in this industry. Company faced a difficult period from FY2013 to FY2015. Company faced double whammy and reported losses in FY13 and FY14 due to decrease in cement prices and increase in power cost in Andhra region. Excerpt from AR2013 “Cement units in the State were badly affected by a combination of factors such as creation of excess capacity coupled with a fall in demand, recession in the infrastructure sector and slow-down of construction activity, frequent power-cuts, steep rise in the cost of key inputs like power and coal, coupled with fall in the market prices.” Company went into CDR in 2014 and completely emerged out of it only in 2017.
- SEBI, by order dated 30.03.2020, imposed penalty of Rs. 7 lakh on promoters of the Company for violation of Insider Trading norms during the period 15.12.2011 to 09.10.2014.
- High competition in Southern Region: South region has 34% capacity market share with installed capacity of 171 mtpa out of 496 mtpa pan India as on 31.03.2019. Also the capacity utilisation is on lower end at 62% in South against 73% pan India basis.
Capacity as on 31.03.2020
CEMENT
- Ordinary Portland Cement
Portland Pozzolona Cement
Special Cement- 53-S - Unit 1: Simhapuri, Telangana
- Unit 2: Kondapalli, Andhra Pradesh
- Capacity : 2.70 Million Tons
- Dealers: 1800
- Markets: Andhra Pradesh, Telangana, Tamil Nadu, Karnataka, Pondicherry
READY MIX CONCRETE
- Unit 1, 4 & 5: Visakhapatnam, Andhra Pradesh
- Unit 2, 3, 6 & 7: Hyderabad, Telangana
- Capacity: 60Cu.Mtrs / Hour each
- Markets: Hyderabad & Visakhapatnam
CEMENT BONDED PARTICLE BOARD
- Plain, Laminated, Designer Boards & Planks
- Unit 1 & 3 : Simhapuri, Telangana
- Unit 2 : Paonta Sahib, Himachal Pradesh
- Capacity: 90,000 tons
- Distributors: 350+
DURADOOR UNIT Malkapur (V)
- Near Hyderabad
- Capacity: 1,000 Doors Per Day
HYDRO POWER PROJECTS
- Unit 1: Pothireddypadu, Andhra Pradesh
- Unit 2: Hospet, Karnakata
- Installed capacity: 15.75 MW
Things to work on.
- Door Division: Company has capacity of 1000 doors per day and with each door priced at around Rs. 18000, they have a sales potential of Rs. 600-700 cr p.a. They also received LoA from Andhra Pradesh government recently of total order of Rs. 1860 cr in which NCL has 50% shares. What is the sales potential and time frame of this order?
- What could be the reasons for low valuations in such good markets? Other cement companies in same region are also priced better than NCL. Company is quite old and management also has clean past.
Disclosure: Holding 4% of Portfolio. No transaction in past 15 days.