Monday, May 12, 2008

Stock Idea - Bihar Caustic & Chemicals

CMP - 72
Sensex - 16860
Not the most endearing or sexy sounding name with context to the stockmarkets. But then whats in the name.

Bihar Caustic is part of the Aditya Birla Group. It is a subsidiary of Hindalco and was promoted alongwith the BSIDC ( Bihar State Industrial Dev Corporation). Hindalco owns 56.31 % of the equity and BSIDC owns about 8.69 %.

The company’s current installed capacity covers ..

Caustic soda (100%NaOH) 92,750 mt
Liquid chlorine 65,785 mt
Hydrochloric acid (100%) 29,040mt
Sodium hypochlorite 1,800mt
Compressed hydrogen 17,42,400nm3
Aluminium chloride 12000tpa

The company also has a 30 MW captive power plant and has just commissioned a stable bleaching powder plant March 08.

Investment rationale.
The company has a captive customer in the form of Hindalco. It nearly meets 80 % of Hindalco’s caustic soda which is required in the aluminium manufacturing process. The Aditya Birla group has a large chemicals business portfolio spanning multiple companies and is amongst the largest caustic soda mfgs in the country.

BCCL benefits from group initiatives in R & D and developing best practices in manufacturing.

Financials ( Rs in crores)
Year--------Sales--------Net Profit--------Cash Profit
Mar 05--------107.9--------26.4--------34.7

Mar 06--------111.5--------26.1--------35.4

Mar 07--------143.2--------33.7--------49.6

Mar 08--------174.7--------49.2--------66.5

Current Equity Capital – 23.3 crores
EPS - 21.07
Cash EPS - 28.54

Current Stock Price - Rs 72
Current PE = 3.31
Current Book Value - Rs 86.4
P/BV - 0.83

One of the counter arguments would be that it is in a commodity business and subject to the vagaries of commodity cycle.

The company has constantly worked towards moving up the value chain by producing value added products so as to reduce its exposure to the commodity cycle. The bleaching powder plant commissioned in mar 08 is a case in point. The company also sells excess power that it generates to JSEB.

Anyway the margin of safety on the stock is high with a strong promoter background and captive customer coupled with attractive valuations. I currently hold a position in the stock.

Disclaimer - I m not recommending buying the stock based on my statements. Kindly do u r own analysis to reach that conclusion.


Pankaj Pandekar said...

I have been following this stock. Looks a long term bet and neglected company. There is a contigent libility on the company. Can you comment on how this affects the valuation of the company?

Inquisitive Stranger said...

i feel lucky, i bought a very small quantity a couple of days back at 86. will accumulate if get it for even 10% cheaper from now on.