Bihar Caustic & Chemicals Ltd - Rs 28.00

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. Last fiscal it again increased the capacity by 20% to 265 TPD by addition of electrolysers as well by debottlenecking. So presently its plant boast of having an installed capacity of 265 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. Well in order to gainfully utilize the additional chlorine (by product) produced after caustic soda expansion, BCCL commissioned an aluminum chloride plant from June’07. This plant has a capacity of 12000 TPA and has produced around 5200 tonne of aluminium chloride for last fiscal. Aluminum chloride is basically used as an input for manufacturing of aluminum. Secondly, BCCL has also set up a 25 TPD stable bleaching powder (SBP) plant as a value added product for chlorine utilization. This plant has also started production of about 25 tonne per day with optimum quality as per international standard. With both these new products namely aluminum chloride and bleaching powder, company is estimated to boost its topline by Rs 40~45 cr per year. Secondly, 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 Hindalco being its parent company & biggest customer, this is relatively a safer bet.

To maintain its growth momentum in future as well, BCCL is now in the process of further augmenting the capacity of its Caustic Soda Plant from 265 TPD to 300 TPD at a capital investment of Rs 30 cr. The requisite order has already been placed and the expanded capacity is scheduled for commissioning by end of current fiscal. Fundamentally, BCCL is doing quite well as for FY08 it reported 20% and 45% growth in sales and PAT to Rs 174 cr and 49 cr respectively. Notably, BCCL also enjoys the highest operating margins among it peers - even better than Gujarat Alkalies and Chemfab Alkali. However for the Sept’08 qtr it recorded a drastic fall in profit on the back of very high power and fuel cost as during the quarter the boiler of the power plant tripped due to mal functioning of Safety device. Hopefully things are back to normalcy and company is estimated to report normal profit for coming qtrs. Considering caustic soda price haven fallen much recently and assuming it to remain stable in future, BCCL can clock a turnover of Rs 200 cr and profit of Rs 38 cr i.e. EPS of Rs 16 on equity of Rs 23.40 cr for FY09. To highlight the importance of BCCL being a Aditya Birla group, it will be soon renamed as Aditya Birla Chemicals (India) Ltd. So despite belonging to such a reputed group and having strong fundamentals like high profit margin, low debt equity ratio, huge reserves, good dividend yield, consistent growth etc, scrip is poorly discounted at P/E multiple of less than 2x times and EV/ EBIDTA of 2x times. There is also a possibility of BCCL getting 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 can easily double within a year.

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