DCM Shriram Consolidated Ltd. - Multibagger (Ashish Chugh)

CMP – Rs.82.45 NSE Symbol -DCMSRMCONS BSE Code –523367 (Face Value – Re. 2)

An important announcement that got missed out in the carnage that we witnessed on the bourses this week was country’s biggest private sector land deal so far – a Rs.1675 crore deal signed between DLF (through its subsidiary company) and DCM Shriram Consolidated and Lohia’s.

DLF Ltd. through its subsidiary bought 38 acres of land located in West Delhi from DCM Shriram Consolidated and Lohia Group. DCM Shriram Consolidated and Lohias had already surrendered 74 acres of land to DDA in terms of the orders of the Hon’ble Supreme Court. The land is located in West Delhi, around 10 km from Connaught Place. The total deal size is Rs 1675 crores and DCM Shriram Consolidated having 50% share of the rights, title and interest has already received Rs 837.50 crores upon signing of the Agreement to Sell.

DCM Shriram Consolidated Ltd is a Rs 2500 crore diversified business conglomerate based in North India and has interests the entire Agri-Rural Value Chain comprising of Fertilisers, Chemicals, Seeds, Sugar and Rural Retailing through Hariyali Kisaan Bazaar; Chlor-Vinyl Industry – Plastics, PVC and PVC Compounds; Cement, Textiles, Energy, and Building Systems. The company has manufacturing facilities located at Kota (Rajasthan), Bharuch (Gujarat), and Central UP and the Hybrid Seeds operations are located at Hyderabad, Vietnam, Philippines and Thailand.

Fertiliser Business

The company’s Urea plant located at Kota, Rajasthan has a production capacity of about 380,000 TPA which includes a capacity of about 700 TPD of ammonia which is an ingredient in the Urea manufacturing process. The company is the lowest cost naphtha-based urea manufacturer in the country. The plant has its own captive power generation.

The company has converted the plant into dual feed - the facility can now accept dual feedstock of naphtha and gas in any proportion. The necessary infrastructure for transporting gas from the source to the plant has also been put in place. Meanwhile, the Company is in the process of negotiating gas supplies through spot or long-term supply agreements with major suppliers and should be able to secure LNG supplies by the forthcoming year, which will reduce the cost of production.

Chemicals Business

The Company is implementing a capacity expansion of 51,500 TPA at its Bharuch plant which will take the total capacity to 2,27,750 TPA. Further, it is also setting up a 48 MW coal-based power plant to cater to the energy needs of the present as well as enhanced capacity. The cost-efficient thermal power plant will ease the cost pressures that the Bharuch facility had been witnessing on account of high furnace oil prices and improve competitiveness.The expansion is expected to be completed in Q3 of FY’09.

Sugar Business

The company’s sugar mills are located in Central UP. The company has increased the crushing capacity to 33,000 tpd and captive power cogeneration plant of 70 MW capacity. The company’s factories are located in the cane area, which helps it get regular supply of cane leading to high plant utilization.

Cement Business

The company has a 4,00,000 TPA plant located at Kota which utilizes the sludge generated from the calcium carbide and PVC plant. DSCL is the only manufacturer in the country that converts waste into consistent quality, premium grade cement.

The cement is sold under SHRIRAM brand name and enjoys a strong brand equity in Northern India.

Rural Retail – Hariyali Kisaan Bazaar

Hariyali Kisaan Bazaar is an initiative by the company in Rural Retail and provides complete range of agri inputs, financial services, farm inputs, healthcare, FMCG, Consumer durables, Apparels etc. to the rural population.

The company currently has 85 outlets and has plans to expand them to 250 in the next 12-18 months.

The creation of a sizeable number of stores may lead to huge potential opportunities in terms of tie-up with various companies for distribution reach. In a recent development, the company has tied up with Fortis Healthworld,a healthcare retail chain which aims at providing the farmers with all encompassing health needs under one roof including OPD facility, Telemedicine, Prescription, OTC and vetnary medicine. Many such tie-ups may be in the offing.

Fenesta Building Systems

The UPVC Window and Door systems pioneered by DSCL under ‘Fenesta’ brand is a value-added extension of the Company’s existing PVC resin and PVC compounding operations.

The extrusion facility located at the Company’s integrated complex at Kota is a state of the art facility using imported machinery and equipment. The profiles made at the extrusion facility find their way to the fabrication shops located in different parts of the country. Currently, the Company has five fabrication facilities located at Bhiwadi (near Delhi), Mumbai, Bangalore, Hyderabad, and Chennai. Besides these locations, the Company has a full-fledged marketing network in Cochin, Coimbatore, Pune and Chandigarh. The Company has received good response from the consumers and it is scaling up the operations on Pan-India basis.

Financials

The latest financials of the company are given as under :- (Rs in Cr) (Source: Capitaline)

Particulars	Quarter Ended	Quarter Ended	Quarter Ended	Year Ended	Year Ended	Year Ended
	(Jun 07)	(Jun 06)	(% Var)	(Mar 07) (12)	(Mar 06) (12)	(%Var)
Sales	616.49	680.52	-9.4	2701.46	2332.57	15.8
Other Income	10.11	8.6	17.6	33.71	17.35	94.3
PBIDT	48.35	81.41	-40.6	236.21	283.74	-16.8
Interest	30	18.74	60.1	77.34	48.45	59.6
PBDT	18.35	62.67	-70.7	158.87	235.29	-32.5
Depreciation	29.17	20.26	44	90.26	70.19	28.6
PBT	-10.82	42.41	PL	68.61	165.1	-58.4
Tax	-3.05	12.27	PL	22.8	18.11	25.9
Deferred Tax	0	0	-	0	31.8	-100
PAT	-7.77	30.14	PL	45.81	115.19	-60.2

Latest Data As On 17/08/2007
Latest Equity(Subscribed)	33.18
Latest Reserve	518.49
Latest Bookvalue -Unit Curr.	33.25
Latest EPS -Unit Curr.	0.48
Latest Market Price -Unit Curr.	82.45
Latest P/E Ratio	171.77
52 Week High -Unit Curr.	127.1
52 Week High-Date	1/9/2007
52 Week Low -Unit Curr.	68.5
52 Week Low-Date	6/12/2007
Market Capitalisation	1367.85
Stock Exchange	BSE
Dividend Yield -%	0.97

(Rs in Cr ) (Source: Capitaline)

The reduction in profits for FY 06-07 has been primarily on account of two factors – One, the shutdown of 45 days in the fertilizer plant , which was done to enable change of feedstock configuration from Naptha to duel fuel – i.e both Naptha and LNG, led to reduced Revenues and Profits in the Fertilizer business and two, the Sugar business has been a drain on company’s profits. Moreover, delay in subsidy by the Government with regard to imported fertilisers also impacted margins.

Conclusion

DCM Shriram Consolidated has been a well managed corporate and has successfully carried out various expansions and diversifications over the last few years. The company has a deep understanding and knowledge of Indian rural milieu and has a well-established presence and strong brands across the entire agri-space in India.

The company’s businesses - Chlor Alkali and fertilizer business, though cyclical are witnessing a growth trend and the expanded capacities should augur well for the company in the times to come. The Fenesta Building Systems division of the company started a few years back has started turning around and may see accelerated growth in the coming years.

The company is bullish on rural retail and its Hariyali stores cater to all the needs of a rural household from agri-inputs like seeds, fertilizers, tilling equipment and pesticides to consumer durables like TV and refrigerator and household items like Toothpaste and pulses. With 70 stores already opened by the company and many more in the pipeline, the business will give the company a strategic advantage due to high rural penetration and can command rich valuations in case of the company offering a strategic stake to a partner.

The company has bagged a 700 crore Chattru Hydroelectric Power Project of 108 MW from Himachal Pradesh government.

The company has recently received Rs.837 crores towards Sale consideration of its Delhi land. The amount is substantial given its market cap of Rs.1370 crores. The company can reduce its debt and save substantial amount towards interest cost or can utilize the amount for further expansion projects.

The management has already demonstrated its ability by successfully carrying out various expansions and diversifications in diverse businesses.

Investors can buy the stock at the current levels and on declines.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members do not have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.