Stock Review: Binani Cement

There is interesting story developing in this stock. I have covered this stock earlier when it was ruling at around Rs 140. Since then we have seen it moving to Rs 240 and then the market carnage has brought it down to about Rs 165-170 levels. As you have rightly said in last couple of days, we have seen it moving by about Rs 50-60. This is the behaviour, these kind of stocks show, that if you have the conviction that the fundamentals are intact, which I have in this stock, then you see this kind of upmove coming in.

Let us come on the story, the company is now presently holding 70% stake in Binani Cement. Binani Cement is having present capacity of close to about 9 million tonne and they are expanding this capacity to 15 million tonne, which will get completed in year 2011, maybe in the next 12 months. So, they will be having the geographical presence capacity of close to about 10 million tonne in India and the balance 5 million tonne will be spread in Mauritius, China. So, they will be having the global presence.

Now, if you see the Binani Group, they have been very conservative. Apart from that, they have recently initiated a move to delist Binani Cement. As I said, the Binani Industries is already holding 70% in Binani Cement and the promoter i.e. Binani Industries has initiated a move to delist the shares of Binani Cement. If you see the shareholding pattern of Binani Cement, about 24-25% stakes are held by four-five institutional investors. So, I don't think that delisting should be a problem by the company in mopping up all the shares at about Rs 100 per share. So, I am presuming that Binani Industries will be able to delist the Binani Cement. They will be having the effective control of the company with the stake of close to about 95%. The next logical move on part of the promoter would be to sell the cement division because we have seen that companies, which have a capacity of more than 10 million tonne, can fetch very good valuations close to about USD 170-175 per tonne. We only have three-four companies in this space, I am not talking of the larger ones like Shree Cement, India Cement, Madras Cement and the fourth could be the Binani. So, I am taking a call that ultimate intention of the promoter would be to delist Binani Cement, acquire the control of the company by having 95% stake and then go for the sell of the cement division.

If all these things happen, the present enterprise value of the company, Binani Industries, post delisting will be close to about Rs 2,500-2,600 crore. If they initiate this sale of 15 million tonne and if I calculate the USD 175 only for 9 million tonne, they can fetch about Rs 8,500 crore. So, there is huge value upside seen in the stock. I attribute a value of, even if they go for part equity dilution and all that, share has the potential to move to about Rs 800-1,000. Now, it is ruling at around maybe Rs 220-230. But let us not take such a optimistic call and even if the company acquires and it becomes the 95% owner of this Binani Cements then also the share is seen to have huge value. I am taking a call of about Rs 400 atleast in the year 2011.