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Tuesday, August 25, 2009

Anjani Portland Cement Ltd:Future growth prospects and outlook

Scripscan:Anjani Portland Cement Ltd

Story:One sector that has surprised everybody by its resilience is cement. Demand has been robust even in the supposedly lean last few quarters and new supplies are getting absorbed. In FY09, about 23 million tonnes (MT) of capacity went on stream, taking the total domestic capacity to 212MT. Cement consumption grew 11% nationwide in the June quarter. Growth was limited to 4% in the southern market, which is the largest regional market, and has been growing robustly.Anjani Portland Cement is a small cement manufacturer based in Andhra Pradesh with a production capacity of 0.5 million tonnes per annum. Anjani is run by the family that had promoted Raasi Cement which faced a hostile takeover bid by India Cements in 1999. Anjani is now run by KV Vishnu Raju who is a BTech from Michigan Technological University and had worked with EI Dupont De Nemours in Delaware, USA, until September 1991. He is the grandson of Dr BV Raju, founder of the Raasi group. KVV Raju returned to India and was running Raasi Cement when India Cements launched its successful hostile bid for the company. After losing control of Raasi Cement, the Rajus took over Shez Cement Ltd, which was originally promoted by Syed Bhadruddin Shez, and renamed it Anjani Portland Cement. The company has 600 acres of land located six kilometres from the factory for limestone mining. It produces 53 grade, 43 grade and Portland pozzolona cement. Anjani plans to increase its capacity to 1.2 million tonnes by 2010. Andhra Pradesh is the largest market in the south. Consumption there was sluggish because government projects were delayed due to the general elections. However, the offtake is expected to improve as the Andhra Pradesh government is very active in promoting rural development schemes in irrigation, housing and infrastructure.Anjani’s financials have been good, except in the March quarter. Operating profit margin has been around 27%. It saves on freight because it sells its products in the nearby areas. The company’s power requirement is met through its subsidiary, Vennar Ceramics. Almost 55% of the power produced by Vennar at its 2.7MW gas-based power plant is supplied to Anjani. Last year, it diversified into the printing press business by purchasing Hitech Print Systems Ltd which is into high-quality, secure printing solutions. The five-quarter average sales growth and operating profit growth of Anjani are 35% and 23%, respectively. Its market-cap is just 0.44 times sales and 1.63 times operating profit. Anjani hopes to hit a turnover of Rs450 crore by 2010-11 with the addition of new capacities. At an expected EPS of Rs10.5 and a price of Rs34, the stock is undervalued. However, the stock has run up a lot. The right price to buy this stock is at around Rs30.

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