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Saturday, May 16, 2009

Binani Industries Ltd:-Holding company with huge value

Scripscan:Binani Industries Ltd
Traded in:Nse-bse

Story:BIL is a holding company with three major subsidiaries - Binani Cement (BCL), Binani Zinc (BZL) and Goa Glass Fibre. BIL itself doesn''t have any operations. Recently, BCL nearly tripled its cement production capacity to 6.2 million tonnes (mt) and the full impact of the augmented capacity will be visible from present fiscal onwards. BZL has a 38,000-tonne smelter plant located in Kerala. It was allocated mines in Rajasthan and plans to move zinc production closer to the mines in Rajasthan.BCL is likely to be BIL''s main growth driver. BCL plans to double its global cement capacity to around 12 mt by FY10.BCL also announced plans to set up a port-based 2.5-mt cement plant in Gujarat to supply clinkers to the UAE grinding unit, thus helping it tap growth opportunities in West Asia. BCL is eyeing opportunities in eastern India. If things go as planned, BCL''s revenues may cross the $1-billion mark by FY11.Though it''s one of the early investors in zinc production in India, BZL''s growth and profitability have been hampered by a lack of captive mines.Its Kochi plant depends on imported ore concentrates, making it highly vulnerable to prices and availability of ore concentrate in the international market. To overcome this, BZL is now in the process of securing three mining leases in Rajasthan and Gujarat for captive use. This will help BZL to significantly augment metal production, besides bringing down operational costs. Shifting metal production to Rajasthan will free nearly 1,000 acres of land near Kochi port, which BZL can commercialise after paying conversion charges to the state government. The market value of the land will run into hundreds of crores.Since BIL is a holding company and has no operations as such, the ''sum of parts'' valuation method is most appropriate. BZL has no close competitor and it''s going to be a turnaround story once it gets the lease to mine zinc in Rajasthan. BZL''s smelting capacity is one-tenth that of Hindustan Zinc. After discounting 75% of Hindustan Zinc''s value and adjusting for the capacity, the fair value of BIL''s 90% stake in BZL is estimated to be around Rs 385 crore. Similarly, BIL''s current market value of the 65% stake in BCL is valued at over Rs 600 crore. Its other assets and subsidiaries are valued at around Rs 40 crore. So, BIL''s fair net asset value is calculated at over Rs 1,000crores, more than six times its current market capitalisation, which seems highly undervalued.Investors can buy this stock as a value pick.

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