KCP
Prolific growth
The company is doing exceedingly well due to strong growth in its engineering and cement divisions. It is also firming up its plans to develop its surplus land in three cities
| Buy | KCP |
| BSE Code | 590066 |
| NSE Code | KCP |
| Bloomberg | NA |
| Reuter | NA |
| 52-week High/Low | Rs 425 / Rs 186 |
| Current Price | Rs 358 (as on 12th October 2007) |
KCP is a south-based diversified company with interest in cement, engineering and power.
Strong financial growth continues
On standalone basis, for the quarter ended June 2007 KCP reported 42% growth in net sales to Rs 74.34 crore due to sharp growth in revenues from cement business. OPM improved by 590 basis points to 34% due to improvement in margins of engineering and cement divisions. Surge in revenue coupled with improvement in margins have led to 71% jump in operating profit to Rs 25.3 crore.
Other income declined by 30% to Rs 1.48 crore while interest expenses increased by 38% Rs 1.53 crore. As provision for depreciation increased by 39% to Rs 1.98 crore, PBT increased 62% to Rs 23.27 crore.
After providing for tax (up 63% to Rs 6.78 crore) PAT of the quarter soared 62% to Rs 16.49 crore.
On standalone basis, in FY 2007, its sales had grown by a solid 51% to Rs 248.77 crore and PAT was up 176% to Rs 48.28 crore.
Between FY 2004 to FY 2007, sales have more than doubled and net profit has leap-forged from Rs 1.17 crore to rs 48.28 crore.
For the quarter ended June’07 the engineering division reported growth in revenue of 28% to Rs 32.26 crore. PBIT margins for the division increased to 27.34% from 20.81%. PBIT for the quarter zoomed by 68% to Rs 8.82 crore.
Cement division reported a 57% growth in revenues to Rs 59.31 crore. During the quarter dispatches increased by 30% to 190.41 thousand tonnes while realisations increased by 21% to Rs 3119 per tonne. Due to improvement in realisations PBIT margins of the segment improved to 28.24% as compared to 26.24%. Thus PBIT shot up 69% to Rs 16.75 crore.
Power division has reported decline in revenue of 37% to Rs 2.11 crore. PBIT margins for the division have declined to 17.06% from 28.36%. The PBIT for the quarter stood at Rs 0.36 crore, which was 62% lower as compared to the corresponding quarter in previous year.
Engineering division: Capitalising on capex boom
Engineering division contributed 44% of the company’s FY 2007 sales and 51% of PBIT.
The company operates a versatile engineering facility that is capable of manufacturing heavy mechanical equipment to a given design for various industries. The Unit has an integrated facility comprising of foundry, heavy fabrication and machine shop facilities.
This division of the company has significantly contributed to the development of core sector infrastructure in India, Srilanka, Bangladesh and Vietnam. The company has made a pioneering contribution in the modernising & expansion of the Cement and Sugar industries in India by providing high quality import substitution equipment.
Due to all round growth in the Cement, Sugar and Infrastructure sectors, the operation of the Engineering Unit at Tiruvottiyur has been substantially better in terms of turnover and profits.
Capital goods industry is doing very well in both domestic and export markets, benefiting KCP.
Widening of the product range has also widened the customer base. This is leading to better value addition.
With the orders on hand of about Rs 120 crore and the improving product-mix, the management is confident that the performance during fiscal 2007-2008 will be buoyant.
KCP’s engineering division has planned a capex of Rs 20 crore in FY 2008 and Rs 40 crore in FY 2009.
Cement: Demand and price outlook in the south remains the best
Cement division contributed 51% of sales and 42% of PBIT in FY 2007.
The company operates a plant of 5,00,000 tonnes annual capacity at Macherla in Guntur District of Andhra Pradesh. Strong emphasis on new technology characterizes all operations at KCP’s Macherla plant. India’s 1st dry process kiln was installed here in 1958 by HUMBOLDT, Germany even while it was still a prototype in Europe. In 1962 KCP installed a second wet process kiln in collaboration with FIVES LILLIE CAIL, France.
In FY 2007, the company marketed cement in Andhra Pradesh, Pondicherry and parts of Tamil Nadu. The company’s sells 90% of the production in Andhra Pradesh.
Demand for cement has increased substantially in Andhra Pradesh. Hence prices are expected to remain firm and even go up and rule at higher levels as compared to previous year.. The Company has installed and commissioned in April 2007, a Waste Heat Recovery System, at a cost of Rs.11.50 crore, which is expected to generate 1.75 MW electricity. This will bring down outside power purchase by 20% reducing cost of production even as cement prices remain high.
Earlier, KCP had proposed to set up a new cement plant about 70 km away from the existing Macherla plant. But it has now deferred the proposal. However, the company has got allotted new mines for the greenfield plant and is expected to commission them in a couple of weeks and feed its existing Macherla plant in Andhra Pradesh. The company has planned a capex of about Rs 10 crore for de-bottlenecking and plant maintenance in FY 2008.
Power: Capturing hydel and wind potential
The company has five mini-hydel units aggregating to 8.25 MW capacity on the Guntur Branch Canal of the Nagarjuna Sagar Dam. This being an irrigation canal, water is expected to be available for seven to eight months of the year. Electricity generated in these units is wheeled to the company’s Cement Unit for use. Generation in excess of the consumption at the cement unit is banked on a monthly basis and is to be used within twelve months of generation. Electricity unused even after twelve months is sold to the Grid. Electricity used in the cement factory will be deducted from the monthly bills and will get a relief at the H.T rates, while electricity sold to grid will be paid for at the prevalent purchase price as determined by APERC.
Prospects of this Unit are dependent on a good monsoon. Abundant rainfall in the current year has filled the Nagarjuna Sagar Dam to its full capacity and adequate water supply is expected for the hydel plants in FY 2008. As result, this segment is expected to contribute substantially to the profits in FY 2008, from the September quarter..
In FY 2007, the company set up a Wind Farm of 3.75 MW, which was commissioned in September 2006, in Uthumalai in Tirunelveli District, mainly to cater to the power requirements of the Engineering Unit.
Real estate adds the spice
The company is planning to put its real estate in Hyderabad, Vijayawada and Chennai (Thiruvatriyur) to proper use.
The company proposes to develop a 3 star hotel at its land (3-4 acre) in Hyderabad at a cost of Rs 40 crore and is in talks with leading hospitality chains for managing the property.
The company also contemplates developing a Container Freight Station at the spare land at its Engineering unit at Chennai given its proximity to Ennore Port.
The company is also proposing to build mall at Vijaywada where it has a land of less than half an acre.
The last two projects are yet to be worked on financial parameters. The hotel project will be largely funded by internal accruals and external borrowings.
Consolidated financial performance is even stronger than the standalone performance
KCP’s subsidiary’s Vietnam sugar plant made a profit of Rs 5.07 crore in the fiscal ended December 2006 and had a carry-forward profit of Rs 1.10 crore after wiping out accumulated losses. The ensuing sugar year is also expected to be good in terms of cane availability.
The capacity of the Vietnam sugar plant is proposed to be increased by 2,000 tonnes as there is enormous potential with cane availability for longer days of about 230 days. KCP has also proposed a 15-MW cogeneration plant. The expanded capacity and the cogen plant is to be operational by FY 2009.
In FY 2006, the company reported standalone EPS of Rs 13.6. Against this it registered consolidated EPS of 16.6, higher by 22%.
In FY 2007, the company reported standalone EPS of Rs 37.5. Against this it registered consolidated EPS of 46.1, higher by 23%.
Valuations are very attractive
In FY 2008, we expect the company to register sales and net profit of Rs 330.33 crore and Rs 68.93 crore respectively. On equity of Rs 12.89 crore and face value of Rs 10 per share, standalone EPS works out to Rs 53.5. The share price trades at Rs 358. Standalone P/E works out to just 6.7. Also the standalone book value will cross Rs 150 mark in FY 2007.
In FY 2008 consolidated EPS is expected to be around Rs 61. P/E on the expected FY 2008 consolidated EPS of Rs 61, works out to just 5.8.
| | 0403 (12) | 0503 (12) | 0603 (12) | 0703(12) | 0803 (12P) |
| Sales | 116.77 | 135.84 | 164.85 | 248.77 | 330.33 |
| OPM (%) | 8.47 | 14.5 | 15.1 | 30.8 | 34.0 |
| OP | 9.89 | 19.72 | 24.81 | 76.67 | 112.43 |
| Other Inc. | 3.97 | 4.74 | 9.68 | 6.53 | 4.57 |
| PBIDT | 13.86 | 24.46 | 34.49 | 83.20 | 117.00 |
| Interest | 5.84 | 4.89 | 4.44 | 4.44 | 5.36 |
| PBDT | 8.02 | 19.57 | 30.05 | 78.76 | 111.64 |
| Dep. | 6.67 | 4.94 | 5.19 | 6.18 | 7.69 |
| PBT | 1.35 | 14.63 | 24.86 | 72.58 | 103.95 |
| Tax | 0.18 | 4.94 | 7.35 | 24.30 | 35.02 |
| PAT | 1.17 | 9.69 | 17.51 | 48.28 | 68.93 |
| EPS* (Rs) | 0.9 | 7.5 | 13.6 | 37.5 | 53.5 |
| Consolidated. EPS* (Rs) | N.A | N.S | 16.6 | 46.1 | 61.0 |
| * Anulised on current equity of Rs 12.89 crore; Face value Rs 10 each | |||||
| KCP: Results |
| | 0706(3) | 0606 (3) | Var. (%) | 0703(12) | 0603 (12) | Var. (%) |
| Sales | 74.37 | 52.48 | 42 | 248.77 | 164.85 | 51 |
| OPM (%) | 34.0 | 28.1 | | 30.8 | 15.1 | |
| OP | 25.30 | 14.76 | 71 | 76.67 | 24.82 | 209 |
| Other inc. | 1.48 | 2.11 | -30 | 6.53 | 9.68 | -33 |
| PBIDT | 26.78 | 16.87 | 59 | 83.20 | 34.50 | 141 |
| Interest | 1.53 | 1.11 | 38 | 4.44 | 4.44 | 0 |
| PBDT | 25.25 | 15.76 | 60 | 78.76 | 30.06 | 162 |
| Dep. | 1.98 | 1.42 | 39 | 6.18 | 5.19 | 19 |
| PBT | 23.27 | 14.34 | 62 | 72.58 | 24.87 | 192 |
| Tax | 6.78 | 4.17 | 63 | 24.30 | 7.35 | 231 |
| PAT | 16.49 | 10.17 | 62 | 48.28 | 17.52 | 176 |
| EPS* | 51.2 | 31.6 | | 37.5 | 13.6 | |
| * Anulised on current equity of Rs 12.89 crore; Face value Rs 10 each | ||||||
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