Shri Keshav Cements & Infra

Stock Opportunities
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Company Overview:
• Shri Keshav Cements is a family-owned and operated company with a significant promoter shareholding of 68.97%, and all shares are free of pledges.
• The company was incorporated on 1993 as “Katwa Udyog Limited” and changed name to Shri Keshav Cements and Infra Limited on 2007
• The company operates in the cement manufacturing industry, solar energy, and the sale of petroleum products.
• Their revenue contribution as of FY23 is as follows:
→ Cement: 76% of total revenues.
→ Sale of Petrol, Diesel, and Coal: 7%.
→ Solar Energy: 18%.

Cement Manufacturing:
• The cement segment contributes 76% to the company’s revenues.
• They have two cement plants in Karnataka: PLANT 1 with a capacity of 300 TPD using Vertical Shaft Kiln (VSK) technology, and PLANT 2 with a capacity of 800 TPD using Rotary Kiln technology.
• They supply cement to regions including North Karnataka, Coastal Karnataka, Goa, and parts of Maharashtra through over 600 retail touchpoints.
• Their brand is strong in Tier III markets, primarily in North Karnataka.
• They are known for producing cement at a significantly lower cost (30-40% cheaper) by running on 100% green power, making them the only cement plant in India with this approach.

Cement Brands:
They have three regional cement brands:
• Jyoti Power (43 Grade): Used in infrastructure projects.
• Jyoti Gold (53 Grade): Mainly for residential and domestic construction.
• Keshav Cement: A premium brand catering to North Karnataka and South Maharashtra.

Solar Plants:
• The solar energy segment contributes 18% to total revenues.
• They have established solar plants in Koppal, Karnataka, with a total capacity of 37 MWp to hedge power costs in cement manufacturing.

Expansion Plans:
• The company is expanding its cement production capacity nearly threefold, from 0.36 million tons to 1 million tons.
• The expansion includes implementing the latest technology in grinding and optimizing kiln operations to reduce fuel costs.
• The construction of a new pre-heater will increase clinker output by 10-20% with improved quality.
• Slag and flash utilization will increase from 30% to 50-60%, and grinding capacity will rise to 2800-2900 tons.
• The project will take up to 9 months to complete.
• The goal is to reduce fuel consumption from 1100-1150 kilo calories per ton to 750-760 kilo calories per ton, resulting in significant cost savings for reference top class Cement industries are consuming less than 700 kilo calories
• Advanced grinders will also lower power consumption by 300 to 400 units.
• As the expansion comes online they want to increase depth which increases market share in the existing market and also be able to reach the bigger markets like Pune and Bangalore whose consumption far outstrips our production and more than 10-20 times

Financial Impact of Expansion:
• The expansion project will cost approximately 110 crores but is expected to increase EBITDA by 50-60 crores.
• The company aims to save 20-22% on fuel costs and 20% on power costs.
Advantages and Challenges:
• The company’s location in Karnataka is advantageous.
• Investment in technology is expected to improve the quality of clinker and reduce cement production costs.
• Transportation and logistic costs are essential factors in their operations.

Debt:
• Debt on the balance sheet is associated with the solar projects.

Customers:
• The company is focusing on government clients and expanding its reach in villages to improve revenue realization and decrease the concentration of big-ticket customers

Market and Industry Outlook:
• Cement consumption in India is expected to grow, with a CAGR of 11-14% by 2030.
• Raw material costs have increased due to global factors, such as the Ukraine war.

Management Guidance:
• The promoter has invested equity through unsecured loans, and they may consider a mix of placement and loans for future funding.
• The company expects to achieve higher utilization rates in the coming quarters, aiming for 80% utilization.
• Future plans include diversifying into RNC, Cement Boards, and Panels, with a focus on utilizing cement in these products to optimize fuel consumption.
• Plans to increase the number of retail touchpoints and marketing budget after the expansion project.

In summary, Shri Keshav Cements is a regional cement manufacturer with a strong focus on cost efficiency, green power utilization, and expansion plans to capture the growing demand for cement in India. Their unique approach to cost savings and investment in technology positions them for future growth in the cement industry.

Strictly, No Recommendation
Open for discussion!!

Disclosure: Tracking position, for educational purposes & can be biased

5 Likes
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invested in it for same reasons from 110 levels, good write up

1 Like
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Key Risks in the Business:

• Successful expansion could enhance profitability, but delays or overruns may impact shareholder returns
• Variability in solar radiation levels, adverse weather events, and climatic changes can impact revenue generation
• Volatility in input costs, including materials, power, fuel, and freight and any Unpredictable fluctuations in these costs may impact the company’s cost structure and profit margins.
• Competing companies with significant capital investments raise exit barriers, intensifying competition and potentially impacting market share.

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Same Capacity expanction can be seen in the sector as well

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Q2 FY23 - Concall Update

Changes

  • Price Hike in this quarter
  • they are adding addition 3 MW capacity of Solar plant in the existing land due to help of suppliers with no long term commitments

Financials

  • This quarter is the lower revenue generating quarter due to monsoon session
  • The effect of Pet coke price increase has been seen in this quarter and this is also due to FIFO accounting as the prices have declined in Pet coke next quarter will be good

Cyclicality of the cement business

  • H1 is lower revenue quarter and H2 generates more revenues and Q4 is the highest revenue generating one in the industry

Geographical Advantage

  • they are only customer for ~20 suppliers of lime stone which is the reason for lowest limestone prices

Guidance

  • By July capacity will start running - which is lower than the usual time takes for expunction and by 2026 the capacity will reach 100% efficiency
  • They are expecting to achieve EBITDA margins of around INR900 to INR1,000 per ton, taking into account the expected savings and efficiency improvements compared to 800 to 900 per ton
  • Starting from March, the company will be making aggressive investments in marketing. This involves expanding its reach to more retail points, increasing the number of sales executives, bringing in new marketing personnel, implementing a fresh marketing strategy, and reaching out to institutional and government buyers for bulk orders.
  • As the prices have hiked to increase capacity they may consider discounts to customers for more brand visibility
  • They are aiming to become Tier-2 cement company
  • optimistic on demand side in the existing geographies to absorbed the supply and they feel 1mill ton is vary insignificant in the industry
  • As the capacity will increased they can bid for more projects which now they cannot tap and approach bigger customers, institutional buyers, and then give better payment terms

Strictly, No Recommendation
Open for discussion!!

Disclosure: Tracking position, for educational purposes & can be biased

2 Likes
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nice moves in last couple of months

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Yes stock has rallied 100% from the levels i started tracking…and i feel its worth it as the managements is taking efforts to grow the business

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Q3FY24 – Transcripts summary

  • Warrants have subscribed

  • Recognition - from The Bureau of Industrial Standards for meeting the highest quality of cement without any product failures over the past three years of observation

About the Business

350 - Distributors

500-600 – Retail Sales points

They are reducing around 75% - 80% of power cost by green plants

Permission has been granted for the expansion of the solar plant from the current capacity of 37 to 40-megawatt peak

  • Q1 final year will be similar

  • Q2 of next year is going to be a monsoon quarter

  • Q3 is a good quarter

  • Q4 will have little correction

Guidance

In the areas they are in almost 10 to 15 million tons of cement is being sold per month whereas they are only putting in a capacity of 1 million ton per annum which is very minuscule

They are aiming to reduce the dispatches on the delivered basis and relying mainly on an ex-plant basis

Guidance on pet coke - reduction of prices in the petroleum coke and Q4 they are expecting to go down

By FY '26, they are targeting INR900 to INR1000 rupees EBITDA per Ton, and by 27 they are expecting 300 cr of revenues

By FY26 they are aiming for about 75% to 80% of capacity

At 80% efficiency of 1 million ton capacity Considering inflation and a projected revenue of 5,000 per ton, the revenue range is anticipated to be between 370 to 430 (presumably in crores INR) for the top line.

Management has got a very good experience in setting up the power plant

Why sales are flat

  • The cost of the dispatches done in this quarter are typically ex-plant basis and the company is trying to reduce the dispatches on the delivered basis and relying mainly on an explant basis to dealers with discounted prices despite the increase in capacity utilization which has reached 76%
  • The reason for doing so is not to be able to pass on the cost of logistics to the consumer.

Volumes

  • FY23, there are 2,26,000 tons over the dispatch quantity
  • As of 9months, it has reached 1,98,000
  • Expecting the range of 240 to 245,000 tons for FY24

Reason for improvement in EBITDA & PAT

Changes in terms as mentioned above and reduction of prices in the petroleum coke

EBITDA - In this quarter 11.7 cr of EBITDA 8cr is contributed by solar

Reason for solar plant expunction

  1. For transmission from existing lines, 20% to 30% of the capital cost has already been incurred
  2. So now they are just enhancing the DC capacity to accommodate the existing electrical equipment capacity
  3. To accommodate this internal consumption of electricity without incurring additional costs such as cross-subsidy charges this plant will be added
  4. With this capacity of 3 Megawatt, they can increase EBITDA and are expected to be commissioned by April 2024
  5. After the expansion and commissioning of a new one-million-ton capacity in July, the power currently generated and potentially sellable to external parties dew to efficiencies will instead be consumed internally due to increased operations
  6. This setup allows for capitalizing on incentives for the existing power generation facilities, which can then continue to sell power externally with government incentives, while the new solar power project, supports the internal power needs

Inefficiencies

Until the capex is deployed their EBITDA per ton will be lower than the Industry

Now they are consuming 110 units per ton compared to 60 units per ton of electricity as per the industry

3 Likes
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Q4FY24 Concall Update

CAPEX
Capex has delayed from June to November due to temporary restriction caused by availability of water

Way forward for Solar Revenues
As the capacity will increase management is less likely to sell solar power as the captative requirements will Increase

Catch up with Peers in terms of key metrics

Shri Keshav Cements Now Shri Keshav Cements After CAPEX Competition
Power Consumption 100 – 110 Units Per Ton 65-70 50-60
Fuel Consumption 1100-1200 kilocalories per ton 750-800 650-700

Expected ROI post CAPEX – 20% - 22%

Guidance on Utilisation Levels and Others
FY 25 – 60-65%
FY 26 – 65%
FY 27 – 75%

Which meant in FY26 management expects utilisation will be at 65% post CAPEX of 10,00,000 Capacity the volumes will be 650,000 Metric tons. If we look at FY24 Volumes it is 246,000 Metric Tons which is 164% higher volumes

EBITDA per ton without solar benefits management is targeting 900 – 1000 with solar benefits its 1500

Strictly, No Recommendation
Open for discussion!!

Disclosure: Tracking position, for educational purposes & can be biased

3 Likes
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Q1FY25 Concall Update

Key Points

  • 60% in FY26, 70% on FY24 – as per management guidance on utilisation
  • 120 crs of EBITDA can be achieved by 2027
  • Total debt for all capex they have planned for is 190 – 200 crs
  • Distribution Networks From existing 350 dealers at 200-250 Kilometres radios now they are trying to reach 300-kilometre radius
  • Land holding is 220 acres of market value is near to 100cr

Briefing on the Solar Plant Expunction which is going on

  • 3MW Watt new solar plant which will increase by around 45 to 48 lakh units for 13.57cr
  • Currently about 35% to 40% of the power is used for self-consumption and 65% Sold. But with the capex, almost 95% of the power generation will be used on self-captive

Leveraging on the new capex

As the capex projects are aimed at improving the efficiency and capacity of the cement plant with the solar plant in place which are expected to reduce the variable costs and increase production, leading to higher EBITDA margins. The increased cash flows generated from these higher EBITDA margins will then be utilized to

  • Fund the sales and marketing efforts by supplying to the larger dealer network who would like to consume at a higher rate, and giving better discounts and also going deeper in existing markets to increase the presence in the existing markets
  • Cutting down on debt till any new plans comes into place

Going Forword expunction advantage

  • New kiln is designed in such a manner it can expand till 1.8 million tons by adding grinding and crushing equipment
  • Management did not tell about any expansion plan but they are keen at looking for opportunities

Consumer Market

  • The logistics cost to serve for large peers from lime stone clusters is nearly twice compared to location where SKCIL is located
  • Demand of consumer markets is around 30-35 Million ton per annum compared to 1 million ton of current capacity the management feels it’s a small capacity that the market can absorb
  • They are purchasing limestone from 20-odd small to medium mining organizations, where they are the only buyers

Peers in the existing market

The nearby peers at 50Km radius are JK & Dalmia with their own captive mining with a combined capacity of 5 mill tons

View on consolidation, Partnerships and Exit view

  • Consolidation in the cement markets eventually leads to better pricing which will be an advantage
  • Management might partner with larger plants if it makes business sense either in the form of white labelling or anything similar to that
  • If the valuations are good management might think about it but as of now they are will to expand and grow this business

View on Cement Prices

Impact of prices caused revenues to decline despite the increase in volumes and management is optimist as the cement prices are cyclical and the prices of cement are historically increased as the cycle progresses

Strictly, No Recommendation
Open for discussion!!

Disclosure: Tracking position, for educational purposes & can be biased

2 Likes
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https://www.financialexpress.com/business/industry-acquisition-valuations-jump-in-cement-sector-3647940/lite/

About 9000 per tonne cost of acquisition for bigger plants and around 7500 for smaller plants

Keshav should atleast have a 750 cr mcap considering the recent acquisitions in this space and the commissioning of the new 1 million tonne plant?

2 Likes
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Its EV/Ton, so Shri Keshav should have 750cr EV (Current EV is 545cr). So still undervalued, but not astronomically so

1 Like
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Oh yes my bad but still has decent scope of growth and a possible acquisition in the future