DCM Shriram Industries - Rs.78.00

DCM Shriram Industries Ltd. (DSIL) was formed in 1990 on the restructuring of the erstwhile DCM Ltd. It is the flagship company of the DCM Shriram Industrial Group based predominantly in North India with a portfolio of products comprising Sugar, Alcohol, organic and inorganic chemicals, drug intermediates, Rayon Tyrecord & Shipping Containers. Incidentally, all their divisions are performing well due to the growing economy and their future seems even brighter.

DSIL’s sugar, chemical & alcohol plants are located in Daurala, UP, whereas its industrial Rayon and Nylon plant is situated at Kota, Rajasthan. It has a most modern sugar factory with 8000 TCD capacity and is the largest manufacturer of high purity. Double Refined Sugar in the country besides producing sugar cubes, sugar sachets, packaged premium sugar etc. DSIL’s distillery unit is amongst the largest in the country with a capacity of 45,000 KL of bulk alcohol and a million cases of potable liqour and country liquor. Its Anhydrous Alcohol plant of 9000 KL, which produces and supplies ethanol to oil companies for mixing with petrol is based on the latest state of the art Membrane Technology and is the first plant of its kind in India established by a Japnese MNC. DSIL’s industrial fibre plant is also one of the biggest manufacturers of Rayon Tyre Cord, Nylon Tyre Cord and Nylon Fabrics with capacity of 14,800 MT.

Recently, the company has approved the merger its subsidiary, Daurala Organics Ltd with itself under a swap ratio of 1:10. i.e. 1 share of DSIL against 10 shares of Daurala Organics. This is very good for DSIL as this subsidiary is a downstream diversification project of Daurala Sugar to manufacture high technology, high-value drug intermediates. Besides, the management is taking various initiatives to restructure its high debt and bring down the interest cost, which will boost its bottomline substantially. With its sugar, alcohol and industrial fibre segment growing rapidly, we expect it to end FY05 with Net Sales of Rs.530 cr. and NP of Rs.27 cr. posting an EPS of Rs.20 on its current equity of 13.73 cr. Post merger figures for FY05 may be Rs.630 cr. of Net Sales and Rs.30 cr. of Net Profit, which will lead to an EPS of Rs.19 on the merged equity of Rs.16 cr. Since it is quoting at a PE of just 4, which is reasonably cheap, the share price can easily appreciate 50% in 12 months time. Investors are strongly advised to buy at current levels with a target of Rs.120 in 12~15 months.