NCL Industries Ltd: Cementing growth!
(BSE Code: 502168) (CMP: Rs.126.75) (FV: Rs.10) By Subramanian Mahadevan
Incorporated in 1979, Hyderabad-based NCL Industries Ltd (NCL) is engaged in cement, particle boards, ready mix concrete (RMC) and hydro power. It has one of the largest distribution networks in India with over 1,600 cement dealers and 300 distributors for boards. It operates mainly through 3 divisions:
Cement: With its strategically-located 2.7 MMTPA cement plant and a well-established ‘Nagarjuna Cement’ brand, NCL is a strong regional cement manufacturer in South India. Nagarjuna is the only private company in Andhra Pradesh that manufactures special 53-S grade cement. NCL recently enhanced its clinker capacity in Nalgonda to 2.6 MMTPA from 1.6 MMTPA. It largely sells in South India, primarily in Andhra Pradesh/ Telangana (90%) and Tamil Nadu and Karnataka.
Boards: NCL introduced cement-bonded particle boards (popularly known as Bison Panels) in 1990 in collaboration with Bison Werke (Germany), the global leader in particle board technology. These are fire, water and termite-resistant. To address the mounting demand, NCL incurred capex of Rs.400 million in Q3FY18 to enhance its capacity by 30,000 TPA. Post-expansion, the combined capacity for Bison boards at its two plants stands at 90,000 TPA.
RMC and Energy: NCL has 4 RMC plants. Its energy division operates two mini-hydel generating plants: a 7.5 MW plant in Andhra Pradesh and a 8.25 MW plant in Karnataka.
Conclusion: With its expansion plans, NCL is set to capitalize on the booming demand for cement and boards apart from anticipated operational savings and decline in interest costs. At the CMP, the stock trades at an EV/EBTIDA of 5x and an EV/tonne of $34.7 on FY20E earnings. Given its reliable and investor-friendly management, we have a ‘Buy’ on the stock with a price target of Rs.200 within a year.