JK Cements eager to expand, but faces big hurdles

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JK Cements eager to expand, but faces big hurdles

JK Cements has ambitious expansion plans, but with a struggling cement industry in a weak economy, fund raising will not be a breeze for the company, reports CNBC-TV18's Vineetha Athrey.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » JK Cement BSE | NSE 31/05/12 Are Mutual Funds betting on JK Cement?

JK Cements has ambitious expansion plans, but with the cement industry struggling with oversupply on one hand and costlier coal imports denting profits on the other, fund raising will not be a breeze for the company, reports CNBC-TV18's Vineetha Athrey.

The cement player has its task cut out as it plans to more than double output to 17 million tonne by FY17 from 7.5 million tonne currently. The company plans to invest Rs 5000 crore for this expansion, with Indian banks lending two-thirds of the amount.

But in a market riddled with oversupply and high interest rates, raising funds could be a struggle, especially since the company's current debt stands at Rs 1300 crore.

However, the management is optimistic. Special executive Raghavpat Singhania said that he expects demand to pick up soon. "The cement industry is cyclical. In 2007 we were at the peak and now we are at the rock bottom. So we expect demand to pick up by late FY13 or early FY14," he said.

JK Cements is also betting big on its 3 million tonne plant in Karnataka. It is all set to tap the cement market with this plant, a move that is expected to add Rs 300 crore to its turnover this fiscal.

But there are other concerns such as a shortage of slag due to the mining ban, increasing cost of coal imports from Indonesia and Australia, and the depreciating rupee, all of which could act as impediments to the company's plans.

Watch the accompanying videos for more details..