JK Lakshmi sees future in ready-mix concrete

JK Lakshmi sees future in ready-mix concrete
Published: 09 June 2008

JK Lakshmi Cement, part of JK Group, is adding five more ready-mix concrete (RMC) units as part of its expansion plans. At present, it has 10 RMCs, and the addition of another five will be completed by the end of current fiscal with an investment of INR100 crore. The RMC units will come up around Delhi and the NCR region, including Noida and Greater Noida.

Its ongoing capex is expected to be completed by the end of December, which will take its clinker and grinding capacities to 4.75Mta and 3.63Mta, up from 3.65Mta and 2.97Mta, respectively.

Cement capacities will be added at the current location at Sirohi (South Rajasthan) while a new unit has come up at Kalol (East Gujarat) with a capacity of 0.55Mta. Clinker capacity expansion would be undertaken at Sirohi. Of the total capex of INR220 crore, INR7 crore was incurred in FY08 and the balance would be expended in FY09.

Additionally, the company plans a 2.5Mta greenfield unit in Chhattisgarh with a capex of INR400-500 crore. The project is scheduled to be commissioned by 2011.

When contacted by ET, whole-time director, JK Lakshmi Cement, Shailendra Chouksey said: "RMC is the business where the company will concentrate in the next few years as huge opportunity remains untapped." The new Chhattisgarh plant funding would be done through internal accruals, he added.

It sold cement mainly in the western (65 per cent) and northern (35 per cent) states with a dominant presence in Rajasthan and Gujarat. It has recently forayed into the Mumbai market. Its average lead distance was 450-500km, with 45 per cent of its cement being transported by road resulting in its transportation cost rising 19 per cent YoY.

Analyst Milind Raginwar of PINC Research said in a recent note to clients that JK’s grinding and clinker capacity expansion would improve its sales from FY09 onwards. While a partial benefit of this will be visible in Q4FY09, the full effect will be reflected in FY10. Its net sales at INR290 crore are higher by 10.7 per cent YoY in Q4FY08 despite capacity constraints at its grinding units.

Experts say JK Lakshmi Cement uses pet coke and imported coal as its major fuel sources. Petcoke prices have surged 25-30 per cent in recent times and the consistent rise in fuel cost accompanied with an upswing in transportation costs will jack up the operating cost of the company.

Moreover, capacity additions by various cement manufacturers could lead to an excess supply situation. The present capacity in India is 166Mta with 110Mta additionally expected to commence operations in the next 3-4 years. A slowdown in the real estate sector could further impact cement offtake, which may lead to a slump in cement prices.