ICICI Direct.com has come out with report on Burnpur Cement IPO. The firm has advised to subscribe the issue.
Burnpur Cement (BCL), one of the established cement manufacturers of Eastern India, has opened for subscription with its initial public offer of 2,19,00,000 equity shares of Rs 10 each for cash at a premium of Rs 2 per share. The issue will close on December, 3, 2007.
ICICI Direct report on Burnpur Cement IPO
Background
Burnpur Cement’s plant produces 1,000 tpd of cement, and it is a major producer in the eastern region. The company has a presence in West Bengal , Jharkhand and Bihar. It intends to expand its network to Orissa, Madhya Pradesh, Uttaranchal, Haryana and Delhi.
Key Investment Rationale
Demand-supply mismatch in eastern India
There is a significant gap between demand and supply in the eastern region. The proposed expansion would enable the company increase capacity. With several developmental projects on the region, especially on infrastructure, demand for cement is expected to remain robust. Demand will be boosted by the creation of special economic zones (SEZs).
Capacity expansion to consolidate company’s position
To boost its presence in the eastern region, the company has increased the capacity at its existing plant over from 30 tpd to 1,000 tpd. The cement production facility to be set up at Patratu in Jharkhand would be scaled up taking the total production capacity to 1,800 tpd.
Government incentives to boost margins
The company’s proposed project at Patratu would be eligible to avail the various incentives from the state government. They are:
Capital investment subsidy of Rs 7 crore to be paid within three months from the commencement of commercial production.
75% of the VAT paid to be refunded in the subsequent year for a period of 8 years.
50% of interest paid or 2% of the turnover (whichever is minimum) for a period of 5 years subject to maximum of Rs 1 crore per annum
Key Concerns
The company’s business is dependent upon its ability to source sufficient limestone for its operations. The company is dependent upon the continued supply of coal, gypsum and other raw materials and fuel, the supply and costs of which can be subject to significant variation.
The business and future results may be adversely affected if the company is unable to set up the proposed plant at Patratu.
Financials
The company’s turnover grew 82.94% from Rs 14.13 crore in FY05 to Rs 25.85 crore in Fy06. Profit after tax increased from Rs 0.43 crore to Rs 0.88 crore.
Valuations
We expect the company to display higher margin on account of setting up of clinker capacity. At the issue price of Rs 12, the stock looks attractive. We recommend investors subscribe to the issue.
Source: Moneycontrol.com
Saturday, December 1, 2007
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