Devki Group raises the bar with roofing sheets plan
What you need to know:
Devki will start production of Aluzinc, a type of sheet metal that can be used to build motor vehicle components such as exhaust pipes and chassis.
KCB and Barclays Kenya are advancing a combined loan of about Sh12 billion loan as part of a consortium of financiers.
Devki is targeting to export up to 40 per cent of its Aluzinc to vibrant automotive industries in South Africa and Europe.
Devki Group plans to invest Sh28.3 billion to introduce Kenya’s first car-grade metal sheets and boost its cement production.
The capital expenditure is one of the largest in recent years by a local manufacturer and is a boon for Kenya’s largest banks that are lending part of the cash.
Devki will next month start production of Aluzinc, a type of sheet metal that can be used to build motor vehicle components such as exhaust pipes and chassis.
“We are primarily targeting the local roofing market with this line of metal sheets. We will also export the product as we wait for local auto manufacturing to grow,” said Devki Group founder and CEO Narendra Raval.
KCB and Barclays Kenya are advancing a combined loan of about Sh12 billion loan as part of a consortium of financiers.
Devki is targeting to export up to 40 per cent of its Aluzinc to vibrant automotive industries in South Africa and Europe because auto assembly is yet to take off in Kenya. The rest will be sold locally to individuals and real estate developers for use as a high-grade roofing material with enhanced durability.
Mr Raval said the firm has invested Sh6.6 billion in the Aluzinc plant at Ruiru, Thika County. The firm has another steel factory in Athi River, Machakos County.
Mr Raval said Devki imported the technology from Japan-based Nippon Steel, one of the largest suppliers of metal sheets to global vehicle manufacturers, including Toyota Group.
Kenya does not produce motor vehicles — importing most of its saloon cars, buses, and trucks from South Africa, Japan, and Europe, which have established motor vehicle factories.
A limited number of buses, pick-ups, and trucks are assembled, the product of an influx of used units and relatively lower assembly costs in South Africa and Egypt.
Devki’s expansion is set to raise competition in the local roofing market where its main rival is Mabati Rolling Mills (MRM) that produces the Dumu Zas and Galsheet Dumu Resincot brands.
MRM’s products also incorporate Zinc and Aluminium like Devki’s Aluzinc, with the main difference being the ratio of the base materials. Aluzinc’s (cold rolled galvanised steel with metal coating composed of Aluminium (55), Zinc (43.4) and Slicium (1.6)) other benefits include heat repulsion, resistance to abrasion and corrosion at high temperatures and salty conditions.
The capital-intensive industry has benefited from the booming property market that has raised demand for a wide range of construction materials. Production of galvanised sheets, for instance, rose to 255,815 tonnes last year, representing a 40.4 per cent rise compared to 182,151 tonnes in 2009.
Mr Raval said Devki was also spending up to Sh21.7 billion to boost production capacity at its National Cement plant in Machakos which produces the Simba brand of cement.
The company has invested Sh9.5 billion in the cement business and expects to inject the balance over the next few months. This will raise its annual production of cement more than fivefold to 1.8 million tonnes from the current 350,000 tonnes.
Mr Raval said the Sh6.6 billion loan used to build the Aluzinc line was funded by Barclays Kenya and Standard Chartered Plc on a 50:50 basis, implying a Sh3.3 billion loan from each lender.
He added that KCB lent nearly half of the Sh21.7 billion loan for expansion of Devki’s cement plant capacity, with the balance coming from multilateral lenders.
Analysts say corporate lending is more lucrative since it has relatively fewer defaults and lower administration costs besides enabling banks to grow their loan books from the large debts.
Lending to a single borrower is capped at 25 per cent of a financier’s core capital, making the segment a preserve of cash-rich banks.
Devki’s expansion of its cement production will further enhance Kenya’s status as a surplus market, piling pressure on margins amid price wars stoked by new entrants.
Production of cement stood at 4.6 million tonnes last year when only 3.9 million tonnes of the commodity was consumed, implying an excess of 702,000 tonnes.
Cement manufacturers are currently selling a 50 kilo bag at an average of Sh700, reflecting stagnation over the past two years and a significant fall over historical long-term trends.
“We believe that prices in the Kenyan market are likely to stagnate (or decline in a worst case scenario) due to oversupply in the local market and penetration pricing by the smaller operators,” Kestrel Capital said in a recent research note.