Strong diversification plans with latest technology

Moneylife Digital Team

Hyderabad-based NCL Industries, earlier known as Nagarjuna Cement Ltd, has been selling cement in Andhra Pradesh for the past 25 years under the brand name ‘Nagarjuna Cement’. NCL has a capacity of 2,000 million tonnes per day (mtpd) and is planning to expand its capacity to 6,000mtpd. Apart from the cement division, NCL Industries’ business includes manufacture of cement-bonded particle boards (CBPBs), prefabricated products and energy.

The cement division is the major revenue contributor (79% of the total or Rs470.88 crore for FY10-11). The company has two small hydel power projects with a total capacity of 15.75 megawatts (MW). The capacity of the CBPB division is over 80,000 tonnes per annum. The prefab division is a laggard.In FY10-11, NCL Industries signed a joint venture agreement with VST-Verbundschalungstechnik Gmbh (Austria) for erecting high-rises using technology from the Austrian company. A joint venture company, called NCL-VST Infra Ltd, has been formed to take up this activity. VST’s technology aims at cutting down construction time and achieving substantial savings on labour costs. NCL is planning to establish a thermal power plant to cater for the power requirements of the company and also sell surplus power. It also proposes to set up ready-mix concrete units in Andhra Pradesh.

For the financial year ended 31 March 2011, net profit increased almost 100% to Rs23.41 crore from Rs11.71 crore. In the same period, its net revenues zoomed 55% to Rs361.96 crore. According to the company, this surge in profits was mainly due to increase in demand for cement—especially in the last quarter of FY10-11. Segment-wise, gross revenues from the cement division increased to 79% (Rs470.88 crore) for FY10-11 while the boards division contributed Rs61.45 crore to revenues (32%), while revenues from the energy division increased to 26% of total revenues to Rs11.41 crore.



Revenues from the prefab division declined 14% to Rs17.75 crore in FY10-11. For the June quarter, net profit rose to Rs16.94 crore, compared to a net loss of Rs2.56 crore for the corresponding period last year backed by an 84% rise in net revenues to Rs122.13 crore from Rs66.34 crore.

Segment-wise, revenues from the cement division increased 83% to Rs160.11 crore. The boards division contributed Rs15.59 crore to revenues against Rs13.27 crore during the corresponding quarter last year; however, revenues from the prefab division declined 68% to Rs2.01 crore.

Over the past five quarters, NCL Industries reported an average growth in revenues and operating profit of 64% and 93%, respectively. Its average operating margin is 27% and return on net worth is 25%. Its market-cap to revenues is 0.25, while its market-cap to operating profit is just 0.73 times. The stock is attractive at the current market price.