binani cement research report

8/6/2019 Binani Cement Research Report

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RESEARCH REPORT

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Rinkesh Shah PG10072

SYNOPSIS

Cement Sector mainly depends upon the inputcost of Raw Materials, power generating capacity

and the demand and the supply. During the current

year, cement industry's performance has been

adversely affected on account of substantial drop in

cement prices & rising input costs.

Currently, Binani Cement enjoys a PE of 6.37against an industry average of 14. Binani still being a

small player in the Indian market as compared to its

peers has a long way to go before it can establish

itself as a major player in the Indian Market.

The EV/Ebitda for the current year is 6.7x whichis way lower than some of the big players like ACCcements which has EV/Ebitda of 10.27x and Ambuja

Cements which has EV/Ebitda of 10.38x.

The Cement industry will likely see the demandgrow by 9-10% boosted by government initiatives in

rural development, infrastructure and housing.

However, the margins will be low due to stiff price

competition in the industry.

The operating expenses of the company willincrease due to the rising input costs which will

further pull down the profit margin of the company.

The company has also issued a Post Offer PublicAnnouncement (POPA) to delist its fully paid-up

equity shares in accordance with provisions of

Delisting Regulations (Delisting offer / Offer). The

promoter has accepted a discovered price (i.e. the

price at which maximum number of equity shares

were tendered by the Public Shareholders) of Rs. 90/-

per share (Exit Price) and shall accept all the bidstendered at or below the Exit Price and the equity

shareholders of the Company who have validly

tendered their equity shares at or below the Exit Price

will be paid the consideration of Rs. 90/- per equity

share.

1year comparative chart

BSE code : 532849

NSE code : BINANICEM

CMP : Rs. 88.70

Target : Rs. 96.40

Date : 29th April, 2011

Market Cap : Rs. 1,672.88 Crores

BUY


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Industry Overview

Cement is one of the core industries which plays a

vital role in the growth and expansion of a nation. It

is basically a mixture of compounds, consisting

mainly of silicates and aluminates of calcium,

formed out of calcium oxide, silica, aluminum oxide

and iron oxide. The demand for cement depends

primarily on the pace of activities in the business,

financial, real estate and infrastructure sectors of the

economy. Cement is considered preferred building

material and is used worldwide for all construction

works such as housing and industrial construction, as

well as for creation of infrastructures like ports,

roads, power plants, etc. Indian cement industry is

globally competitive because the industry has

witnessed healthy trends such as cost control andcontinuous technology up gradation.

Cement companies try to focus on increasing the

capacity of both, the cement as well as the power

generating capacity. They have to keep pace with the

demand growth. Therefore we see companies

increase their production capacity every 2-3 years

citing the rise in demand. In any given year there

might be a surplus in the production of Cement

thereby forcing the companies to reduce the

production in the subsequent years.

Companies also have to bear the fluctuating input

costs i.e. cost of raw materials which affect their

profit margins. Besides that there are other costs such

as transportation and storage costs which the

companies incur.

Due to stiff competition amongst the many players in

this industry regarding the price or the production the

margins for the cement producing companies have

also been on the lower side.

Scope of the Sector

India is the second-largest cement producer in

the world, with an installed capacity of about 236

million tonnes (MT) in 20092010. The sector is

expected to add an additional capacity of 92.3

MT by 2013. As a result, the industry will have a

total installed capacity of 383.5 MT by March

2013.

During January 2011, the cement production

touched 14.52 MT, while the cement despatches

quantity was 14.47 MT during the month. The

total cement production for April-January 2010-

11 reached 136.51 MT as compared to 130.85

MT over the corresponding period last fiscal.

Further, cement dispatches also witnessed anupsurge from 130.09 MT during April-January

2009-10 to 135.56 MT during April-January

2010-11.

According to latest research report Indian

Cement Industry Forecast to 2012, produced by

RNCOS, cement production in India has grown

at a brisk pace during the last few years. Despite

recession, Indian cement industry performed

incredibly well amid recent boom in the

infrastructure and housing markets. In view ofthe upcoming massive infrastructure projects,

manufacturers are aggressively increasing their

production capacities and the study foresees a

10.5 per cent CAGR growth in cement

production during FY 2010-FY 2014.

According to a press release, the push in cement

demand during the last fiscal was attributed to

revival of infrastructure and real estate projects,

especially in rural areas.

New Investments

Cement and gypsum products have received

cumulative foreign direct investment (FDI) of

US$ 2,315.58 million between April 2000 and

January 2011, according to the Department of

Industrial Policy and Promotion (DIPP).


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BK Birla Group outfit, Kesoram Industries, issetting up a 2,000-tonne a day packaging unit in

Medak district of Andhra Pradesh at a cost of Rs 8

crore (US$ 1.76 million), according to a filing by the

company to the stock exchanges. The proposed unit

would cater to the packing needs of its cementmanufacturing unit at Sedam in Karnataka.

Birla Corporation, Flagship Company of the M.P. Birla Group, is planning to set up a 1 MT cement

plant in Assam at an investment of around Rs.450

crore (US$ 99 million). The company has signed a

memorandum of understanding (MoU) with the

Assam Mineral Development Corporation to this

effect.

Madras Cements Ltd is planning to invest US$178.4 million to increase the manufacturing capacityof its Ariyalur plant in Tamil Nadu to 4.5 MT from 2

MT by April 2011.

My Home Industries Limited (MHI), a 50:50joint venture (JV) between the Hyderabad-based My

Home Group and Ireland's building material major

CRH Plc, plans to scale up its cement production

capacity from the existing 5 million tonne per annum

(mtpa) to 15 mtpa by 2016. The company would

undertake this capacity expansion at a cost of US$ 1billion.

To cater to the growing demands, EverestIndustries is planning to set up a new manufacturing

facility in East India. The company is looking at

acquiring about 22 acres for the facility that will start

with the production of roofing materials and other

products will be rolled out in a phased manner.

Besides, the company is likely to consider setting up

a new factory for the fibre cement boards as it is at

present utilising almost 100 per cent of its 90,000tonne of installed capacity across different plants.

Swiss cement company Holcim plans toinvest US$ 1 billion in setting up 2-3 greenfield

manufacturing plants in the country in the next

five years to serve the rising domestic demand.

Holcim is present in the country through ACC

and Ambuja Cements and holds around 46 percent stake in each company. While ACC operates

16 cement plants, Ambuja Cements controls five

plants in India. The Aditya Birla group is the

largest cement-making group by capacity in the

country and controls Grasim Industries and

Ultratech Cement.

Government Initiatives

The cement industry is pushing for increased use

of cement in highway and road construction. TheMinistry of Road Transport and Highways has

planned to invest US$ 354 billion in road

infrastructure by 2012. Housing, infrastructure

projects and the nascent trend of concrete roads

would continue to accelerate the consumption of

cement.

Increased infrastructure spending has been a key

focus area. Finance Minister Pranab Mujherjee

has proposed to earmark US$ 47 billion for

infrastructure development during fiscal 2011-12.

The infrastructure sector has received an impetus

in the form of increased funds and tax related

incentives offered to attract investors for tapping

the infrastructure opportunities around the

country. Introduction of tax free bonds, creation

of infrastructure debt funds, formulating a

comprehensive policy for developing public

private partnership projects are some

announcements which will give a fillip to theinfrastructure sector which is the backbone of

any economy


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Company Profile

Binani Cement Limited is the flagship subsidiary of

Binani Industries Limited (BIL), representing the

Braj Binani Group. The cement business started

operations in 1997, in Sirohi District, Rajasthan with

a 1.65 MTPA integrated cement facility and a 25

MW captive power plant with technological support

from F. L. Smidth, Denmark and Larsen & Toubro

Ltd. In 2008, a split-grinding unit at Neem Ka Thana

was commissioned, boosting the capacity in India to

6.25 MTPA.

The Company's product portfolio includes Ordinary

Portland Cement, Pozzolona Portland Cement and

Ground Granulated Blast furnace Slag (GGBFS).

As far as market share is concerned Binani cement is

way behind some of the Indian leaders ACC

Cements, Ambuja Cements and Ultratech Cements.

It still has to do a lot of catch up when it comes to

competing with the top players in the industry. The

company is looking to diversify its cement portfolio

by adding new products to its portfolio.

The growth rate of the company has been rather

fluctuating with the growth rate falling to 24% in

2009-10. This is mainly due to the reasons that havebeen mentioned earlier in the report.

Year 2007-08 2008-09 2009-10

Sales 97,868 148,979 185,105

% Growth 44 52 24

In the coming years, the cement industry will see a

rise in the demand as government is planning to

spend massively on the rural and urban infrastructure

and other housing projects. This is likely to push the

demand for cement. On the other hand cement prices

are also likely to go up due to high input costs. This

will boost the cement industry in the coming few

years.

Projected Growth

Although being a small player in the industry,

Binani constantly focuses on growth. Binani

Cement has established itself as one of the top

companies in the industry in terms of efficiency

and performance. What truly sets Binani Cement

apart is its clear focus on the core attributes of

quality, strength and reliability of the end

product. These have paid rich dividends and seen

brand Binani growing in prominence and stature,

poised to capture increasing market share

globally.

Developments in the domestic environment and a

large number of infrastructure projects have

created an unforeseen demand for cement

consumption in India, which is bound to increase

manifold over the coming years. While concrete

steps are being taken to bring down, costs, the

cement industry is heading towards a very bright

future in India.

0

100,000

200,000

300,000

400,000

2011E 2012E 2013E 2014E 2015E

Net Sales

Net Sales

Year 2010E 2011E 2012E 2013E 2014E

Estimated

sales

212,195 244,762 282,344 325,714 375,767

%Growth 14.64% 15.35% 15.35% 15.35% 15.35%


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RESEARCH REPORT

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Future Plans

Growth in domestic cement demand is expected to

remain strong, given the revival in the housing

sector, continued Government spending on the rural

infrastructure and gradual increase in the number of

infrastructure projects being executed by the private

sector. The trend in demand growth seen during the

last five years is expected to continue over the

medium term. Further, with Government targeting 8-

10% GDP growth rate, cement demand should grow

at 9-10% over the next few years.

The key drivers of Cement Industry in India are

Buoyant real estate market in non metro cities. Increase in infrastructure spending on power,road, port and urban infrastructure.

Increase in rural demand driven by NationalRural Employment Guarantee Scheme (NREGS).

Low-cost housing in urban and rural areas underschemes like Jawaharlal Nehru National Urban

Renewal Mission (JNNURM) and Indira Aawas

Yojana

Favourable interest rates and tax benefits onhousing.

Domestic Industrial growth and major expansionplans announced across different segments.

Keeping all these growth prospects in mind the

company proposes to set up a 2.5 million tonnes per

annum capacity cement plant in Sutrapada in

Junagadh district in Gujarat. The company has also

been allocated a lignite block in Nagaur district in

Rajasthan, lignite being a raw material in captive

power generation. The site for the 120 MW power

plant has been finalized and the project is expected to

get complete in June 2011.

Expenses

The increasing expenses that the company incurs

have directly resulted into an inflated bottom

line. The expenses include manufacturing

expenses, payment to employees, selling and

administrative expenses, interests and

depreciation and amortization.

The total expenses for the fiscal year 2009-10

were 78% of Net Sales which is a huge figure.

The expenses figure will increase due to increase

in wages and salaries of employees, high input

costs and other expenses that the company

incurs. However, the growth in volumes of

production and increase in efficiency will keep a

check on the expenses.

EBIDTA margin

The Ebitda margin for the year 2009-10 was

31%. The company enjoyed a pretty high margin

on account of high demand for cement and large

volumes being sold. Also the company has debt

in its books which directly results into interest

payment obligations. The company is looking for

expansion and for that it might require more

debt. But the foreseeing a good demand forcement in the India, the Ebidta margin is more or

less likely to remain the same.

As we see the Ebidta margin is growing. But in

2014E the growth in Ebidta margin drops

sharply. This may be due to rising competition

and increasing expenses.

Year 2010E 2011E 2012E 2013E 2014E

Ebidta 64882 75099 86868 100430 11217

%Growth 12% 16% 16% 16% 11%


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Profit after Tax

The Profit after Tax of the company for the year2009-10 is 15%. The PAT has dropped significantly

due to interest obligations on the debt that it has in its

books and also due to depreciation.

In 2009-10 the companys PAT saw aphenomenal growth of 163%.This was mainly

attributed to the recession phase getting over and

demand of cement going up and also backed up by

government reforms.

In the subsequent years PAT is likely to go downon rising input costs, rising cost of production,

increase in expenses and interest obligations and

depreciation.

In midst of all these the company may notincrease the prices in that proportion which is clearly

seen in the PAT forecast.

Earnings Per Share (EPS)

The EPS for the year 2009-10 has been 13.88which is much lower than Ultratech cements

which has EPS of 52 and ACC cements which

has EPS of 59.

The EPS is likely to go up as PAT increasesin the subsequent year which is mainly attributed

to increase in sales volume and high capacity

utilization and better efficiency.

The book value per share is 33.24 is will increase

in the subsequent years as the profit increases

and will create a better book value for the

investors in the next five years.

0%5%

10%15%

20%25%

% increase in PAT

% increase in

PAT

0

10

20

30

40

2011E 2012E 2013E 2014E 2015E

Earnings per share

Earnings per

share


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RESEARCH REPORT

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Financials

Particul

ars

2008-09 2009-10 2011E 2012E

Rs in

Lacs

12m 12m 12m 12m

Net

Sales

148,979 185,105 212,195 244,762

Other

Income1,291 2,111 2,216 2,327

Total

Income150,270 187,216 214,411 247,089

Expend

iture

119,630 128,037 148,942 171,356

Operati

ng

Profit

30,640 59,178 65,469 75,732

Interest 7,152 7,851 7,322 6,736

Gross

Profit

23,487 51,327 58,147 68,997

Depreci

ation

8,031 9,166 9,003 12,653

Profit

before

Tax

15,456 42,161 49,145 56,344

Net

Profit10,867 28,192 34,401 39,441

Equity

Capital

20,310 20,310 20,310 20,310

Reserve

s

27,330 47,205 81,607 121,048

EPS 5 13.88 16.93 19.41

Balance Sheet

Balance Sheet 2008-09 2009-10 2011E 2012E

Sources OfFunds

Share Capital 20310.38 20310.38 20310.38 20310.38

Reserves andSurplus

27330.41 47205.37 81606.72 121047.7

Total 47640.79 67515.75 101917.1 141358.1

Loan Funds

SecuredLoans

74019.6 92295.59

UnsecuredLoans

3813.54 6013.54

Total 77833.14 98309.13 91522.9 84193.77

Deferred TaxLiability

15542 18677 18677 18677

TradeDeposits

2476.08 2871.09 2871.09 2871.09

Total 143492 187373 214988.1 247099.9

Fixed Assets

Gross Block 158868.1 180051 180051 253053.6

Less: Accum.Depreciation

47118.85 55282.38 64284.55 76937.23

Net Block 111749.2 124768.6 115766.5 176116.3

Capital Workin Progress

20230.14 10000.86 0 0

Total 131979.4 134769.5 115766.5 176116.3

Investments 21129.87 37457.2 37457 37457

Currentassets, loans

and advances

Inventories 21253.95 16998.15 17152.9 19767.13

Cash andBank Balance

8721.46 30943.59 89967.55 67709.99

Loans andAdvances

18479.31 24193.4 24193.4 24193.4

Total 48454.72 72135.14 131313.9 111670.5

Current

Liabilities

and

provisions

CurrentLiabilities

51091.78 43832.71 56393.1 64987.81

Provisions 6980.17 13156.13 13156.13 13156.13

Total 58071.95 56988.84 69549.23 78143.94

Net CurrentAssets

-9617.23 15146.3 61764.62 33526.57

Total 143492 187373 214988.1 247099.9


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Break up of Expenditure

Key Ratios

Particulars 2008-09 2009-10 2010-11E

2011-

12E

OPM% 21% 31% 31% 31%

PAT% 7% 15% 16% 16%

ROE% 23% 42% 34% 28%

ROCE% 18% 33% 32% 30%

P/BV(x) 1.22 1.75 1.20 1.45

P/E(x) 1.9 6.37 5.7 6

EV/EBIDTA 4.63 6.7 3 3.5

Debt Equity 1.63 1.46 0.90 0.60

Cash Flow Statement

Cash Flow

statement

2010-

11

2011-

12

2012-

13

2013-14 2014-15

A.CASH FLOW

FROMOPERATING

ACTIVITIESProfit After

Taxation

34401 39441 47716 57261 66030

Depreciation 9003 12653 13285 13950 17847

Operating profitbefore Working

Capital Changes

43404 52094 61001 71210 83877

CASH FLOW

FROM

WORKING

CAPITAL

CHANGES

(Increase)/Decrease

in Inventories

-155 -2614 -3016 -3479 -4014

(Increase)/Decrease

in Sundry Debtors

Increase/(Decrease)in Current

Liabilities

12560 8595 9915 11439 13198

Cash generatedfrom Operations

12406 5980 6899 7960 9184

Net Cash Flow

from Operating

Activities (A)

55810 58074 67900 79170 93061

B.CASH FLOW

FROM

INVESTING

ACTIVITIES

Sale/(Purchase) of

Fixed Asset

0 -73003 -12653 -13285 -77950

Increase in Capital

Work in Progress

10001 0 0 0 0

Net Cash Flowfrom Investing

Activities (B)

10001 -73003 -12653 -13285 -77950

C. CASH FLOW

FROMFINANCING

ACTIVITIES

Increase/(Decrease)in Total Debt

-6786 -7329 -7915 -8549 -9233

Net Cash Flow

from Financing

Activity (C)

-6786 -7329 -7915 -8549 -9233

Increase/(Decrease)cash and cash

valents (A+B+C)

59024 -22258 47332 57336 5879

Cash and Cash

equivalents at thebeginning of the

year

30944 89968 67710 115042 172378

Cash and Cashequivalents at the

end of the year

89968 67710 115042 172378 178257

Raw

Material

s,

Packing

Material

s and

Goods

Consu

Other

Manufac

turing

Expenses

38%

Payment

to and

Provision

for

Employe

es

2%

Selling

and

Administ

ration

Expenses

31%

Interest

and

Finance

Charges

6%

Deprecia

tion and

Amortisa

tion

6%


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Peer Group Comparison

(figures indicated in Rs Cr)

Companies Binani ACC Ultratech Ambuja

CMP 88.70 1108.2

5

1086.80 155.40

MarketCap.

1,672.88

20,824.02

29,778.32 23,779.31

EPS(Rs.)

13.88 59.59 51.24 8.26

P/E(x)

6.37 18.84 20.67 18.25

EV/Ebidta(x) 6.7 10.27 14.90 10.38

Dividend % 35 205 60 70

Net ProfitMargin %

15.13 14.26 15.30 16.84

As we see the peer group comparison table, the

company has been compared against some of thegiants of this industry. The P/E ratio has been low at

6.37 as compared to its peers which have shown a

healthy P/E ratio which is above 15. In the coming

years the P/E ratio is likely to go down due to stiff

competition. The demand for cement is likely to

increase in the next five years due to government

spending in the infrastructure and housing sector

especially in the rural infrastructure projects.

The EV/Ebidta for Binani Cement has been rather

low at 6.7 whereas its peers are enjoying a much

higher EV/Ebidta which is almost greater than

multiple of 10x.The main advantage of EV/EBITDA

over the PE ratio ratio is that it is unaffected by a

company's capital structure. It compares the value of

a business, free of debt, to earnings before interest.

EV/Ebidta is a much better ratio to measure

profitability than P/E. If a company issues equity to

pay off its debt its EPS will come down and

subsequently its P/E will go up. This unfair

advantage is not there in EV/Ebidta. Therefore, tomeasure the profitability of the company we use this

ratio.The EV/Ebidta for Binani cement is not going

to go up according to the research carried out by us.

It will still drop further. This is mainly due to

stiff competition and rising input costs. The big

major players have fared better as far as Ebidta is

concerned.

Current trends in the cement industry

The cement industry which has been reeling under

low-demand scenario witnessed a growth of

7.23% in sales in February.

The total dispatches stood at 18.39 million tonnes

against 17.15 million tonnes in the same month

last year. Besides, production of the building

material too was up 6.46% at 18.45 million tonnes

compared with 17.33 million tonnes in the

previous corresponding month.

The three domestic majors ACC, Ambuja and

UltraTech Cement came up with positive

growth in their sales number in February. ACC,

however, showed a robust growth of 17% year-

on-year mainly on account of its low base in the

previous year, while Ambuja and UltraTech

managed a growth of 4-5%.


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Road Ahead for the Cement industry

According to a recent research report the cement

industry in India has emerged as a potential

investment hub for international cement giants

during the past few years. Even in the wake of

economic slowdown, the industry sustained its

blistering demand-supply pace and posted positive

year on year growth during 2009-10. In view of the

upcoming massive infrastructure projects, the cement

consumption is expected to advance at 10.6% CAGR

growth during FY 2011FY 2014, which is

anticipated to strengthen long-term investments

viability of the Indian cement industry.

The study identified that housing sector is currently

the prominent consumer of cement in India and

roughly accounts for over 50% of the total cement

consumption in the country. The country is

witnessing a boom in affordable and luxury housing

industry, which is expected to intensify in coming

years and the sector will remain the dominant

consumer of cement during the forecast period.

Further, it has been found that almost all the cement

industry players have either finalized theirproduction expansion plans or are in the process of

strategy development to speed up production during

the next 3-4 years. The stable and fast growing

economy and government support is persuading

industry majors to capitalize on strong cement

demand from massive infrastructure projects. In

coming years, the expanded capacity will not only

enable players to tap the domestic demand, but will

also increase their export considerations.


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Disclaimer: This publication has been prepared solely for information purpose and does not constitute asolicitation to any person to buy or sell a security. While the information contained therein has been

obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any

investments. I, Rinkesh Shah do not bear any responsibility for the authentication of the information

contained in the reports and consequently, is not liable for any decisions taken based on the same. Further,

This Reports only provide information updates and analysis. All opinion for buying and selling are

available to investors after understanding the risk. As per SEBI requirements it is stated that, Rinkesh Shah,

and/or individuals thereof may have positions in securities referred herein and may make purchases or sale

thereof while this report is in circulation. This document is provide for assistance only and is not intended to

be and must not alone be taken as the basis for an investment decision. Please send your feedback to

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binani cement research report

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