Buy – Aditya Birla Chemicals India Ltd

Aditya Birla Chemicals India Ltd (ABCIL) is one of the leading Chlor Alkali company in India, where Hindalco Industries holds 56% of equity. ABCIL was formerly known as Bihar Caustic & Chemical Ltd, is a part of Birla Chemicals.

Products

Its product range includes caustic soda lye with a capacity of 92,750 tpa, liquid chlorine (6,500 tpa), hydrochloric acid (43,750 tpa), sodium hypochlorite (1,800 tpa), compressed hydrogen gas (17,42,400 Nm3/A), aluminium chloride (12,000 tpa) and stable bleaching powder (17,500 tpa). The plant is located at Garhwa Road, Palamau district, Jharkhand.

The plant uses the most-modern, energy-efficient and environment friendly membrane cell technology. With the implementation of membrane cell technology, caustic soda capacity has increased from 160 to 265 tpd. The company also has a state-of-the-art 30 mw captive power plant for uninterrupted power supply.

Some of its major customer’s include: Hindalco, GAIL, SAIL, NTPC, TISCO, Hindustan Uniliver, IOCL, IFFCO, BALCO, JK Paper, Usha Martin etc.

Financials/Performance

During the Financial Year 2008-2009 the Companies‘ gross turnover was up by 14.03 % at Rs. 230.91 crores as compared to Rs. 202.50 crores and net sales were Rs. 204.07 crores as compared to Rs. 174.27 crores in the previous year. Profit before tax stood at Rs. 55.60 crores as against previous year’sprofit of Rs. 58.45 crores.

The company holds cash reserve of 168Cr.

Gross Turnover: 230.91Cr. (FY09)

PAT: 46.08Cr. (FY09)

EPS: 20.78 (TTM)

BV: 102.34 (FY09)

PE:4.45

FV:10

Industry PE: 9.72

Div Yield: 1.62

Current Ratio: 2.13

During past five years, the company doubled its sales and EPS grown over 4 times. Over past five years, the company giving its shareholders an average dividend of 12%.

 

Outlook

 

The Company expects to expand its size of operations with better performance in the coming years by progressive improvement in capacity utilization of the plant. Moreover the Company has plan for further capacity expansion by 250 TPD Caustic Plant and 30 MW Power Plant along with value added Chlorine based down stream products.

 

Risk & Concerns

 

a) Under utilization of installed capacity.

b) Increase in the cost of basic raw material i.e. Salt and Coal.

c) Import threat of Caustic Soda.

d) Frequent bandhs (strikes) and extremist activities affecting movement of goods and Productivity (their plant is naxal infested Jharkhand).

Conclusion

The company passed the tested time very fairly. During the time of the global meltdowns and slowdowns of past two years, while many other large players were struggling to hold their feet, ABCIL could not only withstand, but it could improve both sales and earnings. Naturally, one should expect a better performance once demand and consumption is resumed. Most of its clientele are well known top companies from various sectors. The improvement in sales of these companies will also make more demand for raw materials, which ABCIL supplies.

At current price, we believe, the share is undervalued. It is now selling at around 4.5 times of its TTM EPS of 20.78, as against industry PE of 9.72.

The company will release its Q2FY10 results on 26 October, we expect some good figures.

We expect at least 50% upward movement for this scrip in short to medium term.