Term 1, 2012
Final Report for JK Cements – Group 2
JK Cements is one of the largest cement manufacturers in Northern India and the eighth largest overall India with net cement sales of 2545 crores in 2011-12. Itsmain productsinclude grey and white cement. It produced 53.2 lakh tons of grey cement and 3.77 lakh tons of white cement in the financial year 201112.Grey cement produced consists of Ordinary Portland Cement (“OPC”) and Portland Pozzolana Cement (“PPC”). Their cement products are marketed under the brand names J.K. Cement and Sarvashaktiman for OPC products, J.K. Super for PPC products and J.K. White and Camel for white cement products. JK Wall Putty and JK Water proof are its white cement based value-added products. Housing (74%), infrastructure (17%), commercial & institutional sector (13%) and industrial sector (6%) are the major customers of the cement industry [Refer Figure 1]. Housing constitutes a major chunk of the demand and hence rural and urban housing projects are a key resource generator. Key stock statistics and revenue/earnings data is included in the appendix [Refer Tables 1& 2]
Market Profile, Competition, Strategy, Risks
A. Market Profile:
The demand for cement mainly depends on the level of development and the rate of growth of the economy. The major demand drivers for the cement sector in India are housing, infrastructure and commercial construction. These are key components of the country’s GDP and hence, the average growth of the cement industry is approximately 1.2 times the GDP growth. Significant impetus to both rural and urban housing as per capita income increases in a major driver of the industry. With the increase in national infrastructure investment, the industry is poised to expand further in spite of the worldwide economic recession.
The housing sector contributes around 64% of the total cement demand. It also accounts for 80% of the total real estate developments in the country. Housing demand is expected to be robust backed by various measures adopted in the budget like continued interest subvention up to 15 lacs, exemption from service tax for low cost housing construction, and increase in investment-linked deduction of capital expenditure on low-cost housing from 100% to 150%. There has been a major push by the government in infrastructure development with the intended investment being US$ 1 trillion in the 12th five year plan period (2012-17), against an investment of US$ 514 billion in the 11th five year plan period. Massive investment in infrastructure would provide boost to Indian Cement industry. India is the second largest producer and consumer of cement in the world, accounting for 7-8% of the total global production with an installed capacity of over 300 Mtpa at the end of 2011-12. India’s cement industry performed better in 1
2011-12, on back of robust demand revival in the second half of the financial year. The industry grew by 6.4 per cent in 2011-12 as against less than 5 per cent in 2010-11. Total cement sales were 223.02 MT compared with 209.5 MT in FY11.
For 2012-13, CRISIL Research estimates cement demand to increase 7-8 per cent yoy (Crisil). In the near term, demand could be a little weak because of the lower GDP growth. Given that a large part of the demand comes from the housing sector, high interest rates are not conducive to the urban real estate demand. However, in the long term, the industry is expected to grow at an average of 1.2 times the GDP growth rate. Growth rates of 8-9% can be targeted for the five year period given the increase in investment in infrastructure projects and increasing rural demand.Although India is one of the largest cement markets in the world, per capita consumption of cement is still low as compared to the world average as well as that of other large countries such as China and US. The Indian cement industry, thus,...