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Sunday, February 21, 2010

Stock Analysis - Birla Corporation

Birla Corp has been consistently doing well from past two years. It is the most profitable but cheap cement stock.

Birla Corp’s businesses are mainly cement and jute. Cement contributes 85% of revenues, which have been growing 27% on an average, over the past three quarters; its operating profit was up a huge 70% over the same period. Margins too have improved dramatically and, currently, average an extraordinary 38%.

In the September quarter, the company’s cement segment generated revenues of Rs465.96 crore compared to Rs450.09 crore in the June 2009 quarter, a rise of 4% while the power segment generated revenues of Rs58.17 crore in the September 2009 quarter compared to Rs40.10 crore in the June 2009 quarter, a rise of 45%. In FY09, the company’s cement sales were 5.29 million tonnes and analysts expect these to rise by 2% in FY10. A significant addition to cement capacity is in the pipeline, its impact would be felt only in the second half of FY10. The company has a Rs2,000 crore investment plan which includes 1.2 million tonnes expansion at Chanderia, 0.6 million tonnes expansion at Durgapur and three million tonnes expansion at Satna.

The only problem with Birla Corp is that the September quarter was probably among the best ones for cement companies when they benefited from lower costs and strong growth in volumes and pricing. This sweet spot has now disappeared and the industry is headed for overcapacity; this is more pronounced in the south but all cement companies will be under some pressure.

A stock to buy only at around Rs. 250 - 275 levels for long term investment portfolio.

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