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Saturday, May 16, 2009

Birla Corporation Ltd:-My bet in the cement sector

Scripscan:Birla Corporation Ltd
cmp:190
Traded in:Nse-bse

Story:The company is now well-placed to capitalise on the improvement in the cement industry dynamics in its key markets of the North and the East. At the current market price of 190, the stock is trading at a huge discount to the replacement cost of $100 per tonne, compared to its peer group.The company''s recent expansion of capacity by 1.7 million mtpa has increased the installed capacity to 7.5 million mtpa. The company is upgrading its kiln and pre-calcinising unit, and setting up new vertical roller mills (VRMs) to increase capacity. It is likely to announce new greenfield capacities of approximately 2.5 million mtpa to achieve its target of 10 million mtpa by ''10. The company holds limestone reserves through its 100% subsidiary,Lok Cement, in district Kadapa, Andhra Pradesh.This will increase Birla Corporation's cement despatches by 7.6% and 19% in FY09E and FY10E, respectively.Strong free cash flow generation will further strengthen the company''s balance sheet and financials.The stock trades at a one-year forward price-to-earnings (P/E) multiple of 3.x.Asset valuations of $36 per tonne are much lower than the replacement cost of $100 per tonne, compared to its peer group of the same size and recently-concluded M&A deals.As the industry structure becomes more favourable to the producers, there is likely to be enhanced investor interest in the sector and a re-rating of stocks.The stock appears attractively valued from a one/two-year perspective.Considering all these points Birla Corporation Ltd is a value buy at lower levels.

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