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Wednesday, August 5, 2009

DCM Shriram Industries Ltd :Is it a buy/hold or sell?

Scripscan: DCM Shriram Industries Ltd

Story:Belonging to erstwhile DCM Group, DCM Shriram Inds. is a diversified conglomerate with diversified interests in Sugar, Chemicals and Rayon Tyre Cord Fabrics:

1)Company has 12,000 TCD capacity in Sugar Division.It also has cogen power plant of which 12 MW is sold outside.

2)In Chemical Division, Company is producing Extra Neutral Spirit which is supplied to liquour industry. Last year, company installed super distillation plant which enabled it to produce high quality alcohol for premium segment.

3)Company is one of the leading producers of Rayon Tyre Cord Fabrics in India, part of which is for exports.

Rationale for recommendation:Due to boom in sugar prices, its sugar division is performing extremely well. Further, despite rise in molasses prices, even chemical division is reporting improved performance due to buoyant demand. Due to huge demand from fast growing Tyre Industry, Tyre Cord Division is also doing extremely well. Company is likely to report all time high profit in 09-10. Last year, company was in limelight due to aborted takeover attempt by Delhi based brokerage firm.Company has reported extremely good results for year ended March 2009.

1)Topline grew by 43% to 798 crs
2)PAT stood at Rs 39.64 crs (against loss in previous year), turnaround of 44crs
3)EPS stood at 22.78. Stock is trading at 5.18xFY09 EPS

Company has report Super-fabulous results for Q1:

1.Topline has flared by 50%
2.PBT has zoomed by 6700%
3.Despite big income tax provision, PAT has polevaulted by 13500%.
4. Q1 EPS is 11.60

Conclusion:At present, sugar scrips have reached very high valuations as sugar prices continue to rise. P.E. Ratio of Sugar Industry is more than 18 due to very high P.E. Ratio (35 for Shree Renuka, 20 for Triveni Engineering) of some bigger players. However, P.E. Ratio of 5 for DCM Shriram is extremely low considering that company has other divisions also which reduces risks associated with cyclical sugar business.STOCK IS TRADING AT JUST 3.00XFY10E EPS. DEFINITELY THE CHEAPEST SCRIP IN SUGAR INDUSTRY.Even if company has a low P.E. Ratio of 6, its share price should be Rs. 237/-, based upon FY10E EPS.Promoters had taken preferential offer at Rs. 90/-.A great buy at dips.

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This blog does not share personal information with third parties nor do we store any information about your visit to this blog other than to analyze and optimize your content and reading experience through the use of cookies.You can turn off the use of cookies at anytime by changing your specific browser settings.This privacy policy is subject to change without notice and was last updated on 20.3.2013. If you have any questions, feel free to contact me directly here: Investment in equity shares has its own risks.Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that I consider reliable. I,however,do not vouch for the accuracy or the completeness thereof.This material is for personal information and am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.The stock price projections shown are not necessarily indicative of future price performance.The information herein, together with all estimates and forecasts, can change without notice.

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