KCP Limited - Old is Gold

CMP - 107

KCP  is  a  75  years  old  diversified business group, with business interests in cement, heavy engineering, power, sugar and hospitality.  It has manufacturing units at nine locations over various geographies in India and Vietnam. KCP started as a small cooperative sugar plant in 1941 by its founder Sri. V. Ramakrishna. It has over the years expanded rapidly enthused by the leadership of its founder and inspired on the lines of the technological foresight into other areas like Heavy Engineering (1955), Cement (1958), Power (1998) and Hospitality (2016). The Engineering workshop at Tiruvottiyur Chennai was set up to provide technical and mechanical support to Sugar and Cement factories. The well-crafted strategy turned out to be being at the right place at the right time. The cement factory at Macherla was initially set up to cater to the needs of the then prestigious construction of the Nagarjuna Sagar Dam, a momentous irrigation project.

KCP has state of the art manufacturing facilities , cutting edge technology  and strong project management capabilities. Heavy Engineering division has set up over 40 sugar plants and 12 cement factories in India and overseas. Manufacturing of  critical industrial equipment for mineral processing and chemical industries, steel plants, space  applications, defence , nuclear  and hydro power installations.  Fives Cail KCP Limited is a JV with French engineering pioneer to build turnkey sugar plants.

KCP has been a pioneer in developing the Sugar industry in Vietnam since 1990's as a supplier of sugar machinery to plants in Vietnam. On the invitation of the Vietnam Government to develop sugar cane in rural areas, a 2,500 tcd sugar plant was commissioned by KCP Vietnam Industries Limited since then it has expanded its capacity to 8,000 tcd.

 The KCP Limited - (Corporate) - A Video Profile

https://www.youtube.com/watch?v=mzcdSvTIbqY

Cement

KCP has two cement manufacturing plants in Macherla & Muktyala in the state Andhra Pradesh with captive supply of high grade limestone and producing a combined annual capacity of 2.3 million tons. Both cement plants are having captive power plants. KCP and Shreshtaa Cement brand are sold in Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, Kerala, Maharashtra, Madhya Pradesh, Chhattisgarh and Orissa.

Company has supplied the high grade cement to various landmarks project in like Nagarjuna Sagar Dam, Sri Sailam Dam and Prakasam Barrage, Godavari Railroad Bridge in Andhra Pradesh.

Heavy Engineering

KCP Heavy Engineering (KCP HE) division has two engineering units located in Tamil Nadu at Tiruvottiyur in Chennai and at Arakkonam. Both units have heavy manufacturing capabilities with a fully integrated steel foundry, heavy fabrication, and heavy machine shops with assembly facilities to manufacture heavy equipments for Cement, Sugar, Power, Mining (Minerals), Mineral Processing, Metals, Oil & Gas, Chemicals & Fertilizers, Industrial Gases, Space & Defence and General Engineering Infrastructure.

KCP HE is strategically located in the northern suburbs of the southern coastal port city of Chennai with very close proximity (9 km) to the Chennai / Kattupalli / Kamarajar (Ennore) port for sea transport. Over the last 5 decades, it has become synonymous with uncompromising commitment to quality and delivery of equipments to the diversified global customer base in Australia, Malaysia, Mauritius, Vietnam, Korea, Indonesia, China, Nepal, Bangladesh, Sri Lanka, UAE, Saudi Arabia, Oman, Qatar, Madagascar, Nigeria, Uganda, Ethiopia, Kenya, Rwanda, France, Germany, Austria, Russia, Brazil and USA.

KCP HE has been at the forefront of introducing new processes, products and materials. It offerers some unique advantages to its customers as

• Globally recognized by OEM, EPC Companies & Technology Process licensors

• World Class ASME approved Manufacturing facilities with automated comprehensive welding capabilities and Precision Machining.

• Single point source for critical Heavy Engineering equipment.

• Design & Engineering capabilities using international codes & standard.

• Globally recognized Quality Assurance (QA) systems and standards.

KCP HE has a team of highly qualified engineers and technicians, who are specialists in their area of expertise, i.e, engineering, planning, manufacturing and after-sales support.

The KCP Limited - (Heavy Engineering) - A Video Profile

https://www.youtube.com/watch?v=HriYQGsJ_Ek

http://he.kcp.co.in/

Power

The power division of KCP  generate power through Hydel, Wind, Waste Heat based and Thermal based plants at its various locations to meet the power needs of the cement and HE business. As a result of captive generation of power, the company has been able to save on its power and fuel costs.

Surplus power  from 18 MW plant in Muktyala is sold to the state electricity board.

Hospitality

Mercure Hyderabad KCP is division of The KCP.  It  is four-star hotel in the upper middle segment  run by a leading international hotel chain under management contract of Accor Hotels Group. It is located at prime location of Banjara Hills in Hyderabad. The local art inspired Hussain Sagar Lake lake view hotel has spacious rooms spread across four categories from Superior (98), Deluxe (11), Suites (8), 5 meeting spaces, 3 F&B offerings, Gym and Wi-Fi. Mercure Hyderabad KCP is an ideal place for business and leisure travelers.

In order to unlock value from one of its several prime properties, KCP has constructed  this business grade four star hotel at Somajiguda, Hyderabad. It was inaugurated in April 2016.

Features

• 4 - Star business hotel with 128 rooms.

• Operated by ACCOR Hotel Management under the brand name “Mercure”, which has over 750 hotels worldwide.

• Located at the heart of Hyderabad in the Somajiguda area, which is a major business centre and shopping destination in the city

• It has got good response and occupancy level is increasing gradually.

Mercure Hyderabad KCP wins ‘Best Mid-Market Hotel” award at 2017 HICSA AWARDS

http://dfsaw.asia/porto/2017/04/19/mercure-hyderabad-kcp-wins-best-mid-market-hotel-award-at2017-hicsa-awards/

http://www.mercure.com/gb/hotel-8824-mercure-hyderabad-kcp/index.shtml

Sugar & Power EPC

FIVES CAIL - KCP is a joint venture between The KCP Limited, India & Fives Group of France to provide designs and supplies process equipment, turnkey sugar plants, co-generation, refining and bioethanol industries from cane and incineration of effluent from molasses based distilleries. 

Fives Cail specializes on engineering and design aspects of a sugar plant in order to optimize process efficiency of sugar machinery and the general plant layout. Since Fives Cail does not have any manufacturing facilities of its own, it sub - contracts critical equipment  manufacturing with KCP besides other sub-suppliers. Further, KCP also provides after-sales service and supply of spare parts to its customers.

http://www.fivescail-kcp.com/

Sugar

KCP owns a 66.7% stake in its subsidiary KCP Vietnam Industries. It is a major player in the Vietnam sugar industry. KCP has been involved in developing the Sugar Industry in Vietnam since the early 1990's by supplying core equipment to various sugar factories and also executing turnkey projects. High quality equipment, performance, after-sales-service and experience in growing sugarcane encouraged the Government of Vietnam to invite KCP to set up a sugar factory

The initial production capacity was 2,500 tcd which was further expanded to 8,000 tcd . The company has got the approvals to raise the capacity further to 10,000 tcd in current FY.

The Vietnam economy is growing at good pace and domestic demand is picking up, demand for discretionary products like soft drinks, confectionary would increase will increase the demand of sugar.

http://www.kcp.vn/EN/Introduction/?tn=Detail&tID=3&cID=20

Investment Rationale

Indian economy is moving steady and strongly  with support of optimistic conditions and favourable government policies,  the measures  taken to boost infrastructure and investment, which is  positive for the cement sector, as increased spending on infrastructure will enhances the demand for cement. Spends on smart city development, allocations for Urban Rejuvenation Mission and Mission for Development of 100 Smart Cities, will ensure the cement off  take. The rural push given in the Budget should also spur the rural demand. Adoption of cement in the place of bitumen in new road projects will also help in creating demand for cement. 

KCP cement plants are heaving  great locational advantage. The plants are located within a 125- 175 km range of the proposed Amaravati capital city located centrally in the proposed Andhra Pradesh capital region site. There are a lot of infrastructure projects in the pipeline for Andhra Pradesh and Telangana like the proposed East Coast Economic Corridor, Dedicated Freight Corridor, Diamond Quadrilateral High Speed Rail and National Waterways. The huge infrastructure development concentrated in this region for next 5 years, it will drive cement demand for longer term.

Encouraging economic indicators and the developments in the Capital Region of Andhra Pradesh and other projects taken up in Telangana and Andhra Pradesh, company has decided to expand the capacity of the existing plant at Muktyala from 1.8 million tons per annum (TPA) to 3.5 million TPA. The project is likely to go on stream by next year, which will enable KCP  to capture the growth opportunity on right time. 

The heavy engineering facility in Chennai is having a 4,500 MT foundry and 6,000 MT fabrication capabilities. It is one of the few  heavy engineering workshop in the country which can handle single component casting and machining of more than 200 ton weight. The growth of heavy engineering sector ( capital goods) depends on the pace of industrial activity and state of the economy in general. Now investment cycle is gradually picking up in infrastructure and construction. Specially cement , sugar and infrastructure sectors present a significant growth potential for the KCP HE division.  Uptrend in heavy engineering business will results significant improvement in overall company performance. Company is focusing to make turnaround in the engineering division due to good growth in cement,  sugar and infra sector.

Integrated Heavy Engineering plant is spread over 30 hectare ( 75 acres ) land in dense populated area  in Tiruvottiyur, Chennai suburb. The market value of this land is near to the current market capital of entire company.  Definitely it contains huge value and sooner or later it will unlock substantial value for its shareholders.

KCP has constructed a business grade four star hotel at a prime property in Somajiguda, Hyderabad in order to unlock value of one of the many significant valuable asset created by company since last 75 years. It is operational from last year and occupancy level is increasing. 

After very long gap, sugar sector has shown good growth in past one year and it is expected to remain positive for next 2-3 years. KCP Vietnam Industries has completed the phase-I expansion of sugar unit. Its sugar business in Vietnam is doing well and the company has got government permission to increase their capacity from 8000 tonnes of cane per day (tcd) to 10,000 tcd. The capacity expansion in Vietnam will add significant growth in  top and bottom line.

Company is consistently paying good dividend since last 25 years despite being engaged in highly cyclical business like cement and sugar.

The company saves significantly cost from captive power generating facilities from all possible sources – wind energy, solar, hydel, thermal and power from waste heat recovery system. It also ensure uninterrupted power supply for cement and heavy engineering division.

Conclusion

Future outlook of Cement , Sugar , Hospitality and  Heavy Engineering  ( capital goods) business segments looks very positive in the next  3 -4 years. Government is giving extreme focus on infrastructure, housing , construction and industrial development.  KCP has very good location advantage in every business.   All business segment are expected to perform well in future.  Apart from these businesses company own several valuable properties at different prime locations. In future it will surely unlock huge value for investors. It is giving very good  long term investment opportunity at cmp 107. It can be bought + / - 10% from cmp and   10 -20 % allocation can be given.