Bihar Caustic & Chemicals Ltd - 84.00 Rs

Bihar Caustic & Chemicals Limited (BCCL) was incorporated in 1976 as a joint venture between the Aditya Birla Group and the Bihar State Industrial Development Corporation, primarily with the objective of catering to the caustic soda requirements of Hindalco and to contribute towards the economic development of the backward region of Palamau district in Jharkhand. Today, it is among the leading caustic soda producer in the northern and eastern region of the country. Apart from caustic soda it also produces liquid chlorine, hydrochloric acid, sodium hypochlorite, compressed hydrogen and has recently ventured into aluminum chloride. In India, about 45% of the chemical industry depends upon the caustic soda industry as essential inputs for a host of industries like soap and detergent, aluminum, paper & newsprint, fibre, glass, tyre, chemicals & petrochemicals, pharmaceuticals, water treatment, dyes, textiles, oils, etc. However being a subsidiary of Hindalco Industries, BCCL is having an added advantage of assured off-take of caustic soda by the parent company. It also has a hydrogen bottling facility which provides an additional stream of revenue.

In early 2006, BCCL shifted the manufacturing process of the plant from its earlier mercury technology to the latest energy efficient and environment friendly state-of-art membrane cell technology. Simultaneously it also expanded is caustic soda production capacity by 50% from 150 TPD to 225 TPD at an estimated investment of Rs.112 cr. So presently its plant boast of having an installed capacity of 225 TPD of caustic soda, 200 TPD of liquid chlorine, 130 TPD of hydrochloric acid, 150,000 Nm3/day of compressed hydrogen and 3 TPD of sodium hypo chlorite. Further, company is in process of expanding capacity of its caustic soda plant by 20% to 265 TPD by addition of electrolysers as well by debottlenecking. Hence in order to gainfully utilize the additional chlorine produced after expansion; BCCL has recently commissioned an aluminum chloride plant in Jan’07. This plant has a capacity of 12000 TPA and will boost the topline considerably once fully operational. Aluminum chloride is basically used as an input for manufacturing of aluminum. Secondly, it has also taken a decision for setting up a stable bleaching powder (SBP) plant at an estimated cost of Rs.7.50 cr which will consume another 20 MT of captive chlorine per day. Importantly, as caustic soda production is power intensive, BCCL has put up its own 30 MW coal based captive power plant due to which its energy costs are lower than its peers. Although company is vulnerable to caustic soda price movement but with aluminum sector expected to remain buoyant and Hindalco being its biggest customer, this is relatively a safer bet.

To conclude, BCCL is poised for a good performance in the coming years due to the progressive improvement in capacity utilization of plant, projected expansion and addition of value added products like aluminum chloride and stable bleaching powder. Notably, BCCL also enjoys the highest operating margins among it peers - even better than Gujarat Alkalies and Chemfab Alkali. For H1FY08, its sales improved by 20% to Rs 79 cr and profit increased by 45% to Rs 21 cr. Accordingly it is estimated to clock a turnover of Rs 185 cr and PAT of Rs 45 cr which leads to an EPS of Rs 19 on current equity of 23.40 cr. Ironically, share price was trading around Rs 80 in Sept 2005 when Sensex was around 8500 and still this scrip is available around same levels even though Sensex has shot up to 21000. Hence it has been a huge underperformer despite sharp improvement in its fundamentals. Offlate, company has been on uptrend and hit a new high of Rs 105 few days back. There are also rumors that it may get merged with Hindalco industries. But if this happens, the true value of BCCL wont be unlocked, as the merger ratio will more favorable to the parent rather than subsidiary. Still investors are recommended to buy at current levels as scrip has the potential to touch Rs 150 in medium term.

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