JK Corp: Streamlining manufacturing

ANALYSTS' CORNER

Fortis Securities has initiated coverage on H S Singhania group company, JK Corp with an 'outperformer' rating. A report notes that the company has earmarked a capex of Rs 40 crore to be deployed in two phases to streamline its manufacturing process in order to improve its efficiency and reduce costs.

This will enhance clinkerisation capacity by 5.3 lakh tonne per annum. The company has two cement plants with an installed capacity of 2.4 million tonne and is located at Sirohi (Rajasthan). The company sells cement under the brand name of JK Lakshmi.

The expansion would be funded partly by promoters and partly through internal accruals without any debt component. The planned expansion is in line with the company¿s aim to gain market share.

Fortis notes that in a scenario where the fuel and energy cost is on an upward trend, the company is continuously improving its power and energy consumption norms. Power consumption was brought down to 84 kwh/mn tonne of cement in FY05 by using increased amount of pet coke.

We expect operating margins to improve given reduced cost due to higher volumes and improved power consumption norms. The cost cutting initiatives are part of JK Corp's strategy to become cost competitive. Fortis has put a price target of Rs 110 on the stock, which is currently ruling at Rs 81 levels.

CCL Products: strong demand growth

Prabhudas Liladhar has recommended a 'buy' on coffee maker CCL Products with a price target of Rs 583. CCL Products India is well-known internationally in the instant coffee industry as a processor and supplier to over 30 countries of a wide range of coffees of various grades / qualities.

It is now seeing strong growth in demand for its products as global coffee consumption is on the rise, particularly in Europe and the CIS (15- 20 per cent, and which makes up 76 per cent of its revenue).

In order to make the most of the opportunity, it is doubling capacity to 10,000tpa. This facility, which goes on-stream by end-FY06, will help it move up the value chain towards higher-margin value-added products such as freeze-dried coffee and freeze-concentrated liquid coffee. The plant will be the first of its kind in India.

Driven by these factors, we expect operating margins to expand by 290bp over the next two years to 16.4 per cent. Prabhudas Liladhar forecasts CCL's EPS to jump 35.8 per cent and 54.6 per cent, to Rs. 31.4 and Rs.48.6, respectively, in FY06 and FY07.

The report notes that the stock seems reasonably valued, given other huge positive triggers such as entry into the domestic market, setting up of a plant in Uganda or India and setting up of satellite agglomerated units, which will take the company closer to the consumer.