Management Meet Note

October 6, 2016

NCL Industries (NCLIND)

Rating Matrix
Rating

Unrated

Target

NA

Target Period

NA

Potential Upside

NA

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY13
421.1
56.7
(11.5)
(3.3)

FY14
408.7
28.0
(40.8)
(11.7)

FY15
533.9
70.0
8.9
2.4

FY16
660.8
120.7
53.1
14.4

FY13
13.9
2.8
(6.6)
5.5

FY14
28.1
3.5
(28.5)
(0.7)

FY15
58.9
10.5
3.4
5.8
12.0

FY16
9.9
6.1
2.7
27.0
22.3

Valuation Summary
P/E
EV / EBITDA
P/BV
RoNW
RoCE

Stock Data
Particulars
Market Capitalization
Total Debt (FY16)
Cash (FY16)
EV
52 week H/L
Equity capital
Face value

Amount
| 522 Crore
| 232.5 Crore
| 21.1 Crore
| 733.4 Crore
184 / 80
| 36.7 Crore
| 10

Price Movement
10,000

200

8,000

150

6,000

100

4,000

50

2,000

Sep-13 Apr-14 Nov-14 Jul-15 Feb-16 Oct-16

Price (R.H.S)

| 142

Poised for growth

Nifty (L.H.S)

Research Analyst
Rashesh Shah
rashes.shah@icicisecurities.com
Devang Bhatt
devang.bhatt@icicisecurities.com

We recently met the management of NCL Industries (NCL) to understand

their outlook on Andhra Pradesh & Telanganas cement demand and
insights on the companys future plans. NCL derives over 80% of its
revenues from the cement business operating mainly in south India with
an installed capacity of 2 MT. The rest of the sales come from segments
like cement board particle, ready mix concrete and hydro power. We
believe NCLs strong brand franchise, premium positioning in north
coastal AP and low cost capacity expansion (0.7 MT at | 180 crore i.e.
EV/t of US$40) will enable the company to grow above industry and post
healthy EBITDA/tonne in the next few years. Also, NCL will be a key
beneficiary of the upcoming demand revival in south and a sharp rise in
cement prices. Further, NCL is trading at an attractive valuation US$50/t
(on 2.7 MT capacity), at a ~30% discount to other midcap players.
Key market on verge of turnaround
The companys key markets have witnessed an oversupply situation over
the past few years on account of political instability in Andhra Pradesh
(the key cement consuming state in south) and a general slowdown in the
economy. However, going forward, we expect demand to revive in
Andhra Pradesh and Telangana led by the creation of Telangana and
political stability in Andhra Pradesh. Both governments of Andhra
Pradesh & Telangana are planning to invest heavily in infrastructure
projects. The Andhra Pradesh government has proposed to invest
| 20,000 crore to develop its new capital Amravati. Further, Telangana is
planning to invest in low cost housing and irrigation projects, which could
generate cement demand of ~2-4 MT in FY17E. NCLs cement plant is in
close proximity to these infra projects, which would make it a key
beneficiary of cement demand emerging from the region.
Capacity expansion to drive growth
The company is planning to expand its clinker capacity from 1.6 MT to 2.6
MT and grinding capacity from 0.96 MT to 1.7 MT by March 2016. This
will take the companys total cement capacity to 2.7 MT from the current
2.0 MT. The incremental capacity of 0.7 MT will be commissioned at a
cost of | 180 crore i.e. US$40/t, far below the current replacement cost of
~US$70-80/t. This low cost capacity expansion will enable NCL to grow
above industry and generate healthy return ratios.
Cement board division a feather in the cap
The cement board has strong demand and wide application. As a result, it
enjoys healthy utilisation of 75% and an EBIT margin of 24.0%. The
company is planning to increase cement board capacity by 37.5% to
1,10,000, which will further boost its revenue and profitability.
Exhibit 1: Financial Performance
(Year-end March)
Net Sales (| crore)
EBITDA (| crore)
Net Profit (| crore)
EPS (|)
P/E (x)
Price / Book (x)
EV/EBITDA (x)
RoCE (%)
RoE (%)

FY12
500.1
132.2
44.3
12.7
11.2
2.6
6.2
20.6
23.1

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY13
421.1
56.7
(11.5)
(3.3)
2.8
13.9
5.5
(6.6)

FY14
408.7
28.0
(40.8)
(11.7)
3.5
28.1
(0.7)
(28.5)

FY15
533.9
70.0
8.9
2.4
58.9
3.4
10.5
12.0
5.8

FY16
660.8
120.7
53.1
14.4
9.9
2.7
6.1
22.3
27.0

Exhibit 2: Capacity details

Particulars

MT

Current capacity

2.0

Capacity post expansion

2.7

Source: Company, ICICIdirect.com Research

Company exits CDR with re-financing from Piramal Capital

To exit CDR, the company has made a refinance arrangement with
Piramal Capital. NCL plans to raise | 325 crore by issuing non-convertible
debentures to Piramal Capital. The exit from CDR will enable the company
to ease restriction on capacity expansion imposed by banks due to it
being in CDR.
Company enjoys premium pricing in key markets
The company sells its cement under the brand name Nagarjuna, which
commands a premium pricing compared to tier 1 players within its
principal market of coastal AP. Apart from premium pricing, the company
sells 75-80% of its cement in non-trade segment, which is generally a
high margin business.
Presence across cement products and regions
The company has a presence across cement products like cement boards
and ready mix concrete. The presence across cement products enables
the company to service customers across value chain and helps the
company to get real time information of the demand scenario. The
company sells 65-75% of its volumes in AP & Telangana, 15% in
Karnataka and the rest in Tamil Nadu.

Exhibit 3: Segment-wise revenue share in FY16

Prefab
0%

Energy
0%

Exhibit 4: Segment-wise revenue share trend

RMC
5%

1200
1000

Boards
10%

2
18 67 7

800
600
400

665

200

48
0 104 2

45
25
4
4 77

38
1 80 12

520

476

FY13

FY14

0 94

7
839

646

0
FY12
Cement
85%

Cement

Boards

Prefab

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

Exhibit 5: Revenue trend

Exhibit 6: EBITDA, EBITDA margin trend

660.8

700.0
500.0

500.1

120.7

300.0

30.0
25.0

100.0

408.7
| crore

400.0

132.2

RMC

120.0

533.9
421.1

Energy

FY16

80.0
60.0

20.0

70.0

56.7

15.0

(%)

600.0

140.0

FY15

10.0

200.0

40.0

100.0

20.0

5.0

0.0

FY12

FY13

FY14

FY15

Net sales

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

FY16

28.0

FY12

FY13

FY14

EBITDA

FY15

FY16

EBITDA margin

Source: Company, ICICIdirect.com, Research

Page 2

Exhibit 7: Net profit and net margin trend

| crore

40.0
8.9

20.0

10.00

30.0

5.00

20.0

0.00

-5.00

(20.0)
(11.5)

(40.0)

(40.8)

(60.0)
FY12

FY13

FY14

Net profit

FY15

27.0
22.3

23.1
20.6

10.0

5.5

(%)

53.1

44.3

(%)

60.0

Exhibit 8: RoCE and RoNW trend

(10.0)

-10.00

(20.0)

-15.00

(30.0)

FY12

12.0
5.8

(0.7)

FY13

FY14

FY15

FY16

(6.6)
(28.5)

(40.0)

FY16

RoCE

Net profit margin

RoNW

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

Exhibit 10: Realisation trend

6000.0

1.34

1.21
1.04

0.96

5000.0

1.13

4000.0
(|)

(MT)

Exhibit 9: Volume trend

4142.8

4053.1

4262.1

FY12

FY13

FY14

3000.0
1000.0
0.0

FY13

FY14

FY15

FY16

Volume trend

Source: Company, ICICIdirect.com, Research

Exhibit 11: EBITDA/tonne trend

Exhibit 12: Cost/tonne trend

1094.9

1000.0

901.9

800.0

|/tonne

620.0

545.8

600.0

292.3

400.0
200.0
0.0
FY12

FY13

FY14

FY15

FY16

Realisation

Source: Company, ICICIdirect.com, Research

|\tonne

4937.6

2000.0

FY12

1200.0

4729.3

FY15

FY16

4500.0
4000.0
3500.0
3000.0
2500.0
2000.0
1500.0
1000.0
500.0
0.0

3047.9

FY12
EBITDA/tonne

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

3507.4

3969.8

FY13

FY14

4109.3

4035.7

FY15

FY16

Cost/tonne

Source: Company, ICICIdirect.com, Research

Page 3

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 4

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reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this
report.

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