29 January 2010

Binani Cement Ltd

Rating: Buy on Decline

CMP:Rs. 71.95 Target Price: Rs. 131

Company Basics Description Stock Basics Figures

FV Rs.10
SECTOR Cement
BV Rs.23.46
BSE Code 532849
EPS Rs.14.04/ Share
NSE Symbol Binani cem
B PE 5.12 times
Group
Beta 0.7501
Equity 203.10 Crores
Dividend Yield 2.92%
Market Cap 1461.30
52 Wk H/L Rs.85/Rs.24.95

Stock Performance
 Binani Cement Ltd
Company Over view

Binani Cement Limited is the flagship subsidiary of Binani Industries Limited (BIL), the
Braj Binani Group. 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 which has paid rich dividends and has seen the brand Binani growing in
prominence and stature firmly poised to capture the world’s imagination.

Company is engaged in the manufacture of ordinary portland cement and portland

pozzolana cement. They are having their production facilities in Sikar and Sirohi in
Rajasthan.

Cement Industry out look

The cement industry has witnessed significant ac-

tion during the past one month as the manufac-
turers in some of the region especially in southern
& western region was able to increase there
prices in these regions. Besides, We expect that
prices across India are expected to witness fur-
ther rise in contrast to the earlier expectation of
price squeeze due to additional capacities coming
on stream. The renewed thrust on infrastructure
development by the government of India had
been able to contain the fall in capacity utilization
level of the cement industry during the past few
months. Thus the additional capacity that fully
stabilized during the past few months were seen
satisfactorily absorbed.
Industry outlook from History
Year-end installed capacity FY04 FY05 FY06 FY07 FY08 FY09

Actual effective capacity 144 152 158 166 199 222

(-) Mothballed capacity 142 152 158 166 180 207

Effective installed capacity 8.5 8.2 8.5 8.3 5.7 4.9

Domestic consumption 136 143 150 158 174 202

Export (cement + clinker) 114 121 136 149 164 178

Domestic consumption 9 10.1 9.2 8.9 6 6.1

Export Surplus / deficit) 123 131 145 158 170 184

% surplus (wrt effective capac- 13 12 5 0 4 18

ity)
Actual utilisation 10% 9% 3% 0% 2% 9%

Average prices 86% 88% 95% 99% 97% 91%

Change in average price 141 153 163 206 231 239

Capacity growth 3% 8% 6% 27% 12% 4%

Domestic demand growth 5% 6% 4% 6% 10% 16%

5.80% 6.40% 12.00 9.90% 10.10% 8.00%

%

Historically, the sustainable capacity utilization in the cement industry has been
80-85%. This implies FY10 are unlikely to be years of overcapacity in the tra-
ditional sense.
 Investment rationale

• Leading Cement Producers in High Growth North

Indian Cement Market
• Locational advantage to the Company as its lime
stone reserves are at a close proximity to its plant
• Focus on integration of International Operations and
Captive Facilities

• Control over Key Components of Manufactur-

ing Process (Limestone, Power, Coal)
• Efficient Operational Performance owing to its
technical base, cost management initiatives,
quality of manufacturing facilities and market-
ing & distribution network
• Consistently making Profits over the years.
• Presence in three Countries with plans to have
presence in African countries
• Experienced Management
• Marketing Strengths:
⇒ Dynamic Brand Positioning & Pricing
⇒ Diverse Promotion Strategy
⇒ Wide Distribution Network
• None the less, very strong fundamentals with
proven track record of dividend paying since
last 3 years.
History of Production, Sales and Sales Realization– Firm out look

Production Versus Sales Qty

5000000 Cement price is totally de-
4500000 pends on its Demand-
4000000
Supply condition.
3500000
3000000 Company is not facing any
2500000 kind of demand supply
2000000 gap. Since last 4 years
1500000 company has proven track
1000000
record of its production
and sales.
500000
0
200603 200703 200803 200903

Production Sales Quantity

Sales Realisation/MT
As such company is
not found any kind of
3800 Supply excess demand
3704.39 condition. And there-
3600
3679.73 fore company fetch
3400 good realization per
3200 3250.43 metric ton over a period
of time.
3000

2800
It is good sign that
2600 company fetch im-
2492.79 proved realization over
2400
a few years.
2200

2000
200603 200703 200803 200903
Some of the important face regarding company
• Company believe that infrastructure spending by the government of India as well
as housing spending in the tier 2 and 3 cities coupled with spending by the state
government has kept the demand buoyant during year.

• Company expect that going ahead despite additional capacity coming on stream,
there is enough demand to absorb the additional capacities at least for the next 1
year.

• Through the company's single location of 6.5 million metric tonnes in Sirohi in the
state of Rajasthan with a 75-megawatt power plant, the company is servicing al-
most all the Northern markets besides the Rajasthan market.

• The company has commissioned the second line of production in its 100% subsidi-
ary in Dubai. Dubai subsidiary is a running unit with a capacity of 1.2 million metric
tonnes and is being expanded to 2 million metric tonnes. The Dubai unit is operat-
ing profitably. The expanded capacity completed in June 2009 and we expect that
company will get benefit of it.

• The company's China plant with a capacity of 0.5 million metric tonnes is being ex-
panded to 3 million metric tonnes by 2011.

• The company has signed an MOU with the Government of Gujarat for facilitation of
approvals, allocation of limestone mines etc. for the green-field project in Gujarat
having 2.5 million tonnes Clinker/Cement production capacity, for which financial
closure has already been done.

• The project is estimated to cost around Rs 700 crore with out the captive power
plants and would be completed by end 2011.

• Company firmly expect that by the year 2011 the company will have a total capacity
of 14 million metric tonnes compare to current capacity of 6million metric tonnes.
 Top line versus Bottom line– Showing a sound picture

Net Sales (In Crores)

1600
1400
1200
1000
800
600
400
200
0
200403 200503 200603 200703 200803 200903 9 Mths
Ended
200912

Net profit (Rs. In crores) Healthy

growth in 9
mths
300 265.01
250
200 175.82

150
108.66
95.61
100
52.96
50
4.14 6.45
0
200403 200503 200603 200703 200803 200903 9 Mths
Ended
200912

Company’s bottom line increase at a very rapid pace than its top line, these shows that com-
pany’s margin is improving over a period of time
Valuation

Currently this stock is trading at P/E 5.12 and forward P/E at 3.84 for FY11 calcu-
lated on the CMP of Rs.71.95 as on 29th January 2010. Currently Company is in
good financial condition and looking to present economic condition, it seems that
economy is recovering all over world and so as infrastructure and construction ac-
tivity, that shows the good revenue visibility of the company.

We believe that company achieve 20-25% revenue growth in FY 2011 and EPS of
Rs 18-19 in same period. We expect that company will improve profit-margin due
to increase in the cements price around north India. Company’s has achieved 5
year’s CAGR sales at 32% and CAGR profit at 92%. Current 9 months (ended
Dec 2009), company achieved magnificent growth in their bottom line and margin
is improving over a period of time and that tempt us to recommend this stock.

BUY ON DECLINES, with best entry price is Rs. 60 with a upward potential of al-
most 100-110%. We expect that this stock will touch Rs.131 with a investment ho-
rizon of 12-15 months.
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