DECCAN CEMENT

Current Market Price-: 424 Rs

DECCAN CEMENT

Deccan Cement Ltd is 41 years old Hyderabad, India based company engaged in the business of Manufacturing of Cement. Company manufactures various different types of cements such as OPC , PPC , PSC , Speciality Cements thus catering to wide variety of customers ranging from Infra Real Estate developers to Indian Railways to Companies engaged in petroleum industry.

Incorporated in 1979 the first mini cement plant based on rotary kiln technology started commercial production in 1992. The company was promoted by M B Raju of the Nagarjuna group — a technocrat enterprenuer who is also its current Executive Chairman . The other companies of the group are DCL Polyesters and Deccan Polypacks.

The cement plant which commenced commercial production in 1982, is located at Bhavanipuram in Nalgonda District of Telangana, at around 165 kms from Hyderabad. The plant manufactures a wide variety of cements, including specialty cements for certain special applications, conforming to BIS, British and ASTM standards, as per requirements. The regular grades of cement manufactured include OPC 43, OPC 53, PPC and PSC. Specialty cements produced include S53 for railway applications, SRC (Sulphate Resistant Cement), Low Heat Cement, Low Alkali Cement etc. The manufacturing plant in Bhavanipuram (Nalgonda, Telangana) has installed capacity of 2.25 million ton per annum. DCL operates in Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Karnataka.2

DCL has a very strong network of more than 1000 cement dealers and consignment agents spread through out the length and breadth of Andhra Pradesh and Telangana and also, in the other southern states of Tamilnadu, Karnataka and Kerala as well as the neighbouring states namely Maharashtra, Madhya Pradesh, Chattisgarh and Odisha. The company’s marketing strength is derived mainly from its wide retail network having a strong presence in the rural market.

The company’s own captive limestone mine, having abundant high quality limestone, is contiguous to the plant premises, thereby ensuring continued and uninterrupted supply of high grade limestone, the basic raw material used in the manufacturing of cement. The mine is self operated by the company by deploying most modern, high productivity mining equipment that assure consistency in quality. It also has a well equipped garage to maintain these equipment in a excellent working condition.

The company also has coal linkages established with Singareni Collieries Company Limited for regular supply of coal, the other major input in the manufacturing of cement.

The company has adopted most modern and proven process technologies from world leaders in the field namely, FL Smidth, Denmark and Humboldt, Germany. Two independent production lines provide high flexibility in manufacturing customer specific specialty products as per market requirements. All the production equipment / machinery have been procured from leading manufacturers / suppliers in their respective fields, majority of which have been imported from countries like Germany, UK, Denmark and USA, eg. Humboldt, Pfeiffer, Loesche, Durag, Siemens etc., from Germany; Raytek, UK; FL Smidth, Denmark; Alstom, USA.

Latest production machinery like Stacker Reclaimer for limestone blending and piling, Ball Race Mill for coal grinding, Vertical Roller Mill for cement grinding etc., have been included to facilitate high quality production and most efficient working. The plant facilities include most modern process control techniques such as fully computerized Central Control Room (CCR), PLC (Programmable Logic Control) and Fuzzy Logic Control, Infra Red Kiln Shell Scanner, CC Cameras and TVs for Kiln & Cooler, Gas Analysers, Smart MCC Systems etc., to ensure consistently high quality of the products. The plant also has fully equipped modern physical and chemical laboratories to carry out testing of incoming raw-materials and outgoing finished goods.

The cement plant is more or less self-sufficient in power with a Captive Thermal Power Plant (15MW), Hydro-electric Power Plant (3.75MW) and Wind Mills (2.025MW) under its fold.

BUSINESS PRODUCTS 

Ordinary Portland Cement (OPC)

OPC is the most commonly used type of cement in the world. OPC is the basic form of cement produced by inter-grinding cement clinker with 3-5% gypsum – which is introduced to enhance the setting time of the cement to a workable 30 minutes or so.

Portland Pozzolana Cement (PPC)

PPC is special blended cement useful in general construction work and is especially suitable for applications in aggressive environmental conditions. It can be confidently employed in construction of hydraulic structures, marine works, mass concreting such as dams, dykes, retaining walls foundations and sewage pipes. It is also suitable for use in common applications such as masonry mortars and plastering.

PPC with fly ash as Pozzolana is more popular in the country owing to the easy availability of quality fly ash from modern coal-based thermal power plant. With the advent of fly ash based PPC, the availability and use of calcined clay based PPC has more or less been decimated.

PPC provides improved workability, has less segregation and bleeding, increased water-tightness and reduced tendency of lime to leach out. It produces less heat of hydration and offers greater resistance to the attack of aggressive water containing sulphates and chlorides. It improves the durability of structures and also the strength of concrete over a period of time by making it more corrosion resistant and impermeable. It protects concrete against alkali-aggregate reaction.

Portland Slag Cement (PSC)

Portland Slag Cement is blended cement consisting of intimately inter-ground mixture of Portland cement clinker and granulated blast furnace slag, or an intimate and uniform blend of Portland cement and fine granulated blast furnace slag, together with required quantity of gypsum, in which the amount of slag constituent is within the specified limit.

Using ground slag to replace a portion of clinker in manufacturing Portland cement is a useful method to make concrete better and more consistent.

Portland slag cement is nowadays commonly used in general civil engineering construction works and is mainly preferred for construction of main structures and in coastal areas where excessive amount of chloride and sulphate are present. It is most useful in massive construction projects such as dams. Its significant properties like resistance to chemical attack makes it most suitable for usage in water retainer structures and structures which are vulnerable to any form of chemical attack.

Specialty Cements

Specialty cements are nothing but modified Portland cement wherein certain components are added to Portland cement to impart the desired qualities. In these cements, the calcium silicates continue to provide the strength but changes are made to Aluminate and ferrite phases. Specialty cements are characterized by smaller quantum of production, limited availability and increased costs.

53-S Grade OPC

Uses -: It is a specialty cement manufactured as per specifications originally formulated by the Indian Railways vide their specification No.IRS T-40 for manufacturing concrete sleepers. 53-S OPC’s negligible chloride content protects it against corrosion. High fineness enhances workability and high early strength enables improved mass production cycle of Railway Sleepers. Apart from its main usage in the manufacture of concrete sleepers, it can also be put to use in pretest concrete elements or high rise buildings where high early strength is required.

Deccan Cements is one of the few manufacturers approved by the Research Designs and Standards Organisation (RDSO) of Indian Railways to manufacture and supply this special grade of superfine cement having enhanced quality and performance characteristics required in the production of Railway Sleepers.

Rapid Hardening Cement:

It gets hardened at a very rapid pace. Apart from rapid hardening, it also develops high strength at an early stage than even OPC 53. It is used in pre-fabricated concrete construction work or in situations where Form Work has to be removed for reuse at a fast rate or some times in road repair works too.

Sulphate Resistant Cement:

This cement is found to be beneficial in areas where concrete has an exposure to sea-coast or sea water. Under any such instances, the concrete is vulnerable to sulphates attack and can cause damage to the structure. By using this specialty cement, one can reduce the impact of the chemical attack and consequent damage to the structure. It is also used in underground structures in sulphate salts rich environment, effluent treatment plant, sugar and other chemical industries, where civil works are likely to be subject to sulphate attack.

High Alumina Cement

It is a cement with very high content of alumina and has the unique property of extensively high rate of strength development, gaining its ultimate strength within 24 hours and has a high resistance to chemical attack. It also has good refractory properties, enabling its usage in high temperature conditions such as furnace lining.

Oil Well Cement

This type of cement is for use in oil wells, using special set of admixtures to contain C3A component in cement. It can withstand high temperature and pressure inside the oil wells, even while maintaining its mobility. This product is used by the petroleum industry for cementing the steel casting to the walls of the oil wells.

Thermal Power Plant

Since, cement manufacturing is a highly power intensive process, the company has incorporated a 15 MW Captive Thermal Power Plant to ensure continuous uninterrupted supply of power to the plant. The company also owns a mini Hydro Power Generation Unit and a battery of Windmills in Andhra Pradesh, which help in augmenting captive power supply to the plant.

Since, cement manufacturing is a highly power intensive process, the company has incorporated a 15 MW Captive Thermal Power Plant to ensure continuous uninterrupted supply of power to the plant. The company also owns a mini Hydro Power Generation Unit and a battery of Windmills in Andhra Pradesh, which help in augmenting captive power supply to the plant.

The fly ash generated from the plant (approximate 150MT) is captively consumed in the manufacture of Portland Pozzolana Cement (PPC).

Hydro-electric Power Unit

As a part of its corporate diversification plan, DCL ventured into power generation soon after this sector was opened up for private investments. The Company took up implementation of a Hydro Power Project of 3.75 MW installed capacity on the Guntur Branch Canal (GBC) of the Nagarjuna Sagar Right Main Irrigation Canal (NSRMC), at a location near Narsaraopeta, Guntur District. This project was taken up for implementation in 1995 and commissioned in April 1996.

The plant is designed for an annual generation of 21 million electrical power units per / annum and the entire power generated is wheeled for captive use in the cement plant of the company, for which the company has entered into a Power Wheeling and Banking Agreement with APTRANSCO.

Wind Farm

As a part of its foray into the power sector, the company, in the year 1995, established a Wind Farm Power Project of 2.025 MW capacity at Ramagiri, Anantapur District in the State of Andhra Pradesh. The Non Conventional Energy Development Corporation of Andhra Pradesh (NEDCAP) had allotted this project to DCL for the captive use of the electrical energy generated to partly meet its energy requirements at its cement plant. The Company has a Wind Power Wheeling and Banking Agreement with APTRANSCO for evacuating the power generated.

The Wind Farm is spread over an area of 43.60 acres. 

(We are not sure that the land beneath the wind farm actually belongs to the company or not. We have written same to the company and are awaiting response)

This Wind Farm has been contributing over 3 Million units of power per/annum for captive use in the company’s cement plant. 

Capex/ Expansion

Deccan Cement Ltd has ordered another vertical mill from Gebr Pfeiffer for its new kiln line at the Bhavanipuram plant in the state of Andhra Pradesh. The line will have a total capacity of 3500tpd. 

The fuel for this line will be ground with an MPS 250 BK mill, which has been ordered through Gebr Pfeiffer’s Indian subsidiary based in Noida. In this case, Gebr Pfeiffer India will also take over the complete order processing and production supervision of the mill manufactured in India. The commissioning of the mill is planned before the rainy season in 2022.

The company is doubling its capacity in the next 2 years from 2.3 mn tonnes currently via brownfield expansion of 2.2mn MT. This expansion taken up by the company is almost after a gap of nine years which would almost doubling its capacity by early FY24E. Further it is expected that Deccan Cement will clock in volume of 6.5% for the next 2 years. The products of the company see healthy demand and the balance sheet of the company is extremely strong.  

FINANCIALS

Standalone quarterly numbers for December 2020

• Net Sales at Rs 208.10 crore in December 2020 up 79.76% from Rs. 115.77 crore in December 2019.
• Quarterly Net Profit at Rs. 33.09 crore in December 2020 up 737.24% from Rs. 3.95 crore in December 2019.
• EBITDA stands at Rs. 51.35 crore in December 2020 up 309.49% from Rs. 12.54 crore in December 2019.
• Deccan Cements EPS has increased to Rs. 23.62 in December 2020 from Rs. 2.82 in December 2019.

For the Year Ended March 2020

• Sales cagr over 3 and 5 years has been negligible.
• Profit cagr over 3 and 5 years is 11% and 27% respectively.
• Operating profit margins has decreased steadily from 20% to currently 14%.
• Opm for last 3 its has been about 25% , which if the company continues to maintain can be solid going forward.
• Company has reserves of around Rs 443 crore
• Debt levels have elevated slightly as compared to last year.
• Although debt has increased but silmultaneous there has also been increase in cash and equivalents. As of 2020 company had cash and equivalents of about Rs 103 crores.
• Promoters holding has been stable over past several quarters. 

INDIAN CEMENT SECTOR AT A GLANCE

India is the second largest cement producer in the world and accounted for over 8 per cent of the global installed capacity as of 2019. Cement production reached 334.48 million tonnes (MT) in FY20. The cement production capacity is estimated to touch 550 MT by 2020. Of the total capacity, 98 per cent lies with the private sector and the rest with public sector. The top 20 companies account for around 70 per cent of the total cement production in India.

The demand of cement industry is expected to achieve 550-600 MT per annum (MTPA) constantly by 2025 because of the expanding requests of different divisions, i.e., housing, commercial construction and industrial construction.

A total of 210 large cement plants account for a combined installed capacity of 410 MT in the country, whereas, 350 mini cement plants make up for the rest. Of the total 210 large cement plants in India, 77 are in the states of Andhra Pradesh, Rajasthan and Tamil Nadu. 

Sales of cement in India stood at Rs 58,407 crore (US$ 8.29 billion) in 9MFY20. India’s export of cement, clinker and asbestos increased at a CAGR of 6.44 per cent between FY16-FY19. In FY20 (till January 2020), it reached US$ 1.66 billion. To enhance the source of capital for infrastructure financing, Credit Guarantee Enhancement Corporation, for which regulations have been notified by the RBI, will be set up in FY20.

The Government of India is strongly focused on infrastructure development to boost economic growth and is aiming for 100 smart cities. The Government also intends to expand the capacity of railways and the facilities for handling and storage to ease the transportation of cement and reduce transportation cost. These measures would lead to an increased construction activity, thereby boosting cement demand. As per Union Budget 2019-20, the Government expected to upgrade 1,25,000 kms of road length over the next five years, which would boost the demand for cement.

The cement industry  is the fifth- largest contributor to India’s exchequer with INR 105.44 billionn  in excise in FY15-16. A leading employment provider in the manufacturing sector, it employs about 20,000 people downstream for every million tonne of cement it produces.

DEMAND FOR CEMENT / SECTORAL GROWTH

Cement demand growth is expected to continue in Q4FY21, as  the aggregate sale volumes of listed cement companies grew 9 percent YoY in Q3FY21.

This trend, of growth was led by the continued momentum in the rural segment and some traction in infrastructure.

A strong rural demand and recovery in the infrastructure segment have been the key drivers of the strong recovery witnessed by the sector.Further eastern region is likely estimated to clock growth in FY21 while central and north have also witnessed a smooth recovery. The recovery in the southern region has been slower, given its higher exposure to institutional sales and a prolonged monsoon, though exceptions such as Deccan Cements Limited witnessed double digit growth in 9MFY21.

Conclusion

India is one of the largest producer of the cement. Cement demand on account of rural demand as well as governments thrust to increase infrastructure spending is only going to increase in the coming period. Deccan Cement with Operating profit margins in line with peers , strong reach with more than 1000 dealer , having cash balance of around 100 crores and on huge capex to double the capacity in coming 2-3 years is well positioned for long term sustainable growth. Trading at the valuation of just Price to earnings of 6 PE where as all other peers trade at PE of above 20 , smallest expansion in valuations coupled with good growth can lead to significant price appreciation of the stock. Thus this is what makes it worth exploring for long term.