Recommendation From Cement Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
KCP LTD. : PROFITING FROM DIVERSIFICATION

HERE IS WHY
✓High growth potential
✓Good next quarter expected
✓Focus on cost control

KCP Ltd. first started off with a sugar plant back in 1941, which has evolved into a diversified business entity over the years with operations in various segments such as cement, heavy engineering, sugar, power and hospitality. The cement segment has contributed nearly 70 per cent to the revenues. Even in the times of lockdown it witnessed pent-up demand, which resulted in a resilient performance. The sugar business contributed nearly 20 per cent to the revenues. The company has nine manufacturing plants across various geographies in India and Vietnam. It reported net sales ofRs1,713.75 crore in FY21 compared toRs1,423.59 crore in FY20. That is a growth of nearly 20.4 per cent.

The revenues were mainly driven by the best ever performance in the cement segment. The EBIDTA stood atRs398.6 crore in FY21 as againstRs203.55 crore in the previous year. That is a growth of over 95.8 per cent. The company has adopted a stringent cost control regime which helped the margins expand. Also, the PAT saw a growth of 225 per cent, an increase fromRs58.01 crore toRs188.77 crore from FY20 to FY21, respectively. A stringent focus on cost control has led to higher margins. Operating profit margin for FY21 stood at 19.38 per cent, a huge leap from 3.2 per cent in FY20. The PAT margin too improved from 4.07 per cent in the previous fiscal to 11.02 per cent in FY21.

The earnings’ per share has been the highest in the decade atRs12.64. Cash flow from operating activities declined 32.9 per cent fromRs193.24 crore in FY20 toRs129.64 crore in FY21. Net sales for the quarter ended June 2021 stood at almostRs548.05 crore. That’s a growth of 3.11 per cent QoQ basis and 58.32 per cent YoY basis. The EBITDA exclusive of other income wasRs131.31 crore which saw de-growth of 4.46 per cent QoQ but a growth of nearly 58.17 per cent YoY. The net profit number stood atRs89.57 crore, a slight decline of 2.6 per cent QoQ but a growth of 161.8 per cent YoY.

The company has been a pioneer in developing the sugar industry in Vietnam, being a supplier of sugar machinery to the plants in Vietnam. It set up a subsidiary named as KCP Vietnam Industries Ltd. as a sugar manufacturing plant. The sugar segment performed poorly in FY21 but recovery was seen in the last quarter due to better realisations. With a favourable monsoon in FY22, the segment is placed in a comfortable zone. The monsoon has also favoured the power segment with decent hydel power generation.

The heavy engineering segment and hospitality segments took a hit from the pandemic. They are finding traction for recovery which would lead to better results in FY22. The company is setting up a packing plant for cement to further reduce cost. This is expected to be completed by the first half of FY22. On the returns front, the company has not disappointed investors. The return on equity stood at 20.58 per cent while the return on capital employed stood at 21.54 per cent. The dividend yield has been decent at 1.34 per cent. The company has reduced its debt levels for the last couple of fiscals with debt-to-equity ratio at 0.47. A low price to earnings multiple of 8.8 plays out favourably considering other cement players as its peers. Considering all these factors, we recommend our reader-investors to BUY the scrip.