Binani Cement

Binani Cement has a presence in northern markets where demand is strong and it also has aggressive growth plans. The stock is attractively valued

 

BINANI Cement, the flagship company of the Kolkata-based Braj Binani Group and subsidiary of Binani Industries, is a leading player in the northern and western markets. In the past few years, the company has aggressively expanded its capacities and can manufacture 6.3 million tonne of cement per annum, nearly triple from its capacity three years ago. In addition, the company also owns cement units in China and United Arab Emirates. The group's holding company, Binani Industries holds a 64.9% stake in Binani Cement.

   Binani Cement's current market capitalisation, however, doesn't fully reflect its fundamentals and the stock is trading at a discount to its peers. This makes it a good value buy for long-term investors.

CAPACITY & EXPANSION PLANS:

The company's plants are located in Rajasthan, and its key markets are in northern region, coupled with Gujarat. To take advantage of the long-term growth opportunities, Binani Cement plans to set-up a greenfield project with 2.5-million tonne capacity, in Gujarat. This project is expected to be funded through a mix of debt and internal accruals, and would involve a capex of around Rs 1,000 crore. However, when this project will be brought onstream still lacks clarity, say analysts.

   Binani Cement owns an 85% stake in its Chinabased Shandong Binani Rong 'An Cement (SBRCC), and is expanding its capacity from 0.5 to three million tonnes. This expansion would involve a capex of nearly $125 million (nearly Rs 575 crore) and it would be financed via a combination of equity and debt. The expanded capacity is expected to come on stream by the middle of '11.

   Binani Cement had invested Rs 1,302.7 crore during the period March 2007 to March 2010, while its operational cash flow during this period was a healthy Rs 1,519.3 crore. As a result, the company's leverage ratio was 1.6 at the end of March '10, as compared to 2.1 times, three years earlier.

FINANCIALS:

Binani Cement's operating profit margin improved 570 basis points y-o-y to 24.4% in the March '10 quarter, and that's despite its realisations that fell nearly 11.6% on a y-o-y basis to Rs 3,395 per tonne. The company's dispatches amounted to 1.46 million tonne in the March 2010 quarter, a rise of 12.6% y-o-y.

   To the company's credit, it has enhanced the use of captive power facilities, and that helped it to grow its operating margins in the fourth quarter, at a time when realisations were sluggish. Nevertheless, its adjusted net profit fell marginally to Rs 19.7 crore in the quarter under review, given a surge in its tax expenses.

   Binani Cement, in mid-June, had also announced a buyback of its shares at a price not exceeding Rs 90 per share. This open offer would run from July 27 till August 10. This buyback would help reduce Binani Cement's bloated equity capital of Rs 203 crore at the end of March 10 by 7.1%, and the company's promoters will not participate in this offer. In addition, this buyback would require an outlay of nearly Rs 130.5 crore and that should not be a problem, considering that its cash and bank balance was Rs 309.4 crore at the end of March '10.

VALUATIONS :

At Rs 81.9 per share, Binani Cement trades at just 5.9 times on a trailing fourquarter basis. Shree Cement, trades at nearly 9.4 times, while smaller-size Mangalam Cement trades at 3.7 times. Investors can consider Binani Cement as a long-term investment.