DCM Shriram Consolidated looks attractive: Ashish Chugh

DCM Shriram Consolidated is a well-run company in a variety of businesses having managed a turnaround and also  available at extremely attractive valuations, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, "DCM Shriram Consolidated is a diversified company in a broad range of businesses. This  company is primarily into chlor-alkali business and into various agri businesses like hybrid seeds, fertilizers and they  have a rural retail chain by the name of Hariyali Kisaan Bazaar. Besides this it is also into cement, sugar and building  systems division by the name of Fenesta.”

He further added, “This company has managed a turnaround in the first nine months of the current financial year. This  is primarily on account of two factors. One is that the margins in the chlor-alkali business have increased and the profits  in that business have doubled, the second major factor is that the losses in the Hariyali Kisaan business which were  eating the profits of the other business segments have come down significantly.”

“You have a turnaround company available at extremely attractive valuation at the current price of about Rs 55. If you  look at the financials of the company FY12 sales were close to Rs 5,000 crore and PAT of about Rs 12 crore. In the  first nine months of the current financial year sales are up by about 10 percent to Rs 4,100 crore and PAT is about Rs  120 crore as against a loss of Rs 37 crore for the same period last year. Cash profit is about Rs 290 crore. This  turnaround has been because of higher profits in the chlor-alkali and sugar business and also the losses in Hariyali  Kisaan Bazaar have come down from about Rs 90 crore to about Rs 34 crore.”

“Other important factor is that in this quarter which is Q3 the losses have come down further to about less than Rs 4  crore from about Rs 40 crore for the same period last year. Market cap at the current price is about Rs 900 crore and  cash profit for the first nine months of the current financial year is about Rs 290 crore, so you have this business which  is available at less than three years cash flow.”

“The point to be noted here is that this company at present in a variety of businesses, many of which are large scale  businesses having economies of scale and all these businesses are integrated in terms of their power requirements.  They all have captive power generation.”

“This company has been a regular dividend payer for the past 20 years, even though I would say that in the past three- four years the quantum of dividends have been small on account of the problems which the company was facing.  Company has not done any equity dilution in the last 15 years. They just gave a bonus to the existing shareholders in  2005 as against a book value of about Rs 80 the stock currently trades at about Rs 55 and since most of its  businesses are fairly large in size potential unlocking in those businesses at a latter stage is something which cannot  be totally ruled out.”

“Promoters have been buying the stock for the past one-one and half years from the markets on a regular basis. They  have increased their shareholding to about 62.5-63 percent from about 56 percent two years back. So in short I would  say this is a well-run company in a variety of businesses having managed a turnaround and also available at extremely  attractive valuations.”

Disclosure: I have investments in DCM Shriram Consolidated.