Buy DCM Shriram Ind; target of Rs 154: Sunidhi Securities

Sunidhi Securities research report on DCM Shriram Industries “DCM Shriram Industries (DCMSIL), a part of DCM Shriram group, promoted by Bansi Dhar, is a diversified group with operations in Sugar, Alcohol, Organic and Inorganic Chemicals, Drug Intermediates, Rayon Tyrecord, Shipping Containers and processed cotton yarn. DCMSIL has its manufacturing facilities located at Daurala (UP) and Kota (Rajasthan). DCMSIL, half of whose turnover comes from sugar, was established in 1990, following the three-way split of DCM in 1990. DCMSIL has co-generation power plant of 12 MW. Exports constitute 28% of sales. During Q1FY15, net profit rose 195.7 per cent to Rs13.6 crore on 15.9 per cent higher sales/operating income of Rs336.6 crore. OPM and NPM stood at 9.0% and 4.0% Vs 8.4% and 1.6% respectively in Q1FY14. Q4FY14 EPS stands at Rs9.1.""During FY14, consolidated net profit advanced by 441 per cent to Rs31.9 crore on 19 per cent higher sales and operating income of Rs1313.3 crore. OPM and NPM stood at 8.3% and 2.3% Vs 7.7% and 1.1% respectively in FY13. FY14 EPS worked out to Rs18.3. A dividend of 35% has been proposed. As per the segment analysis, sugar constitutes 49 per cent of the total turnover. The fibre constitutes 27 per cent and industrial chemicals 24 per cent. Sugar contributed only 41 per cent to the overall operating profits in FY14 whereas fibre contributed 41 per cent. Industrial chemicals contributed 18 per cent to operating profits. Equity capital is Rs17.4 crore. With reserves of Rs202 cr., the book value of the share works out to Rs126. The debt of Rs299 crore gives DER of 1.4:1. The value of the gross block is about Rs658 crore. Due to sustained improvement in rayon product quality, DSIL is one of the preferred sources by the international tyre manufacturers in the high performance segment. DCMSIL with long term understanding with all the leading tyre manufacturers such as Goodyear, Bridgestone, Pirelli, Michelin and Dunlop will witness a steady growth in revenues. The segment is debottlenecking rayon capacity. Nylon chafer production facilities have been upgraded. The contract manufacturing project that started in September 2012 has stabilised and reached full production capacity. Demand for DCMSIL’s chemical products continues to remain stable and the company was able to increase prices as well. The focus is on value-added products such as extra neutral alcohol and anhydrous alcohol as well as on exports. A plant to manufacture a high-value product on contract basis for a large multinational corporation has been commissioned. This has opened new opportunities for the future prospects.""At the CMP of Rs117, the share is trading at a P/E of 4.2x on FY15E and 3.3x on FY16E. We reiterate BUY with a target price of Rs154 in the medium term at which the share will trade at a P/E of 5.5x on FY15E,” says Sunidhi Securities research report.

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