NCL In­dus­tries Ltd: Ce­ment­ing growth!

(BSE Code: 502168) (CMP: Rs.126.75) (FV: Rs.10) By Subra­ma­nian Ma­hade­van

Money Times - - Stock Buzz Stock Scan -

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.

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