The Indian infrastructure boom is expected to benefit investors in that sector. There exists another set of beneficiaries called input industries. Cement is one such industry, and with growth in profitability on the back of rising demand, many players are embarking upon expansion. Barak Valley Cement (BVCL) is one such player located in North Eastern region. BVCL is in the business of manufacturing ordinary portland cement (OPC-53 and 43 grade) and portland pozzolana cement (PPC). The company has three subsidiaries – Badarpur Energy, Cement International, Meghalaya Minerals & Mines.

Business

The company has an installed capacity of 760 TPD of cement manufacturing. The operations are located at Karimganj in Assam. BVCL being located in the north eastern region, it enjoys various fiscal benefits in terms of subsidies and tax refunds.

Standalone Financials

The company posted a consistent growth in revenues from Rs 30.77 crore in FY2002-2003 to Rs 74.33 crore in FY2006-2007, showing a CAGR of 24.66%. On the other hand, for the same period it reported a rise in profits from Rs 2.89 crore to Rs 14.30 crore, depicting a CAGR of 49%. For the Q1 FY2007-2008 the company reported sales and profits of Rs 19.30 crore and 3.47 crore respectively.

Objectives

The company is tapping the capital markets to raise funds for financing its expansion projects. BVCL intends to increase its clinkerisation capacity from 420 TPD to 600 TPD. It wants to increase the cement grinding capacity from 460 TPD to 750 TPD, thus making the total capacity for cement to 1050 TPD.

It also intends to invest in a subsidiary for setting up of a biomass power project. The power generated in this power project will be utilised for captive consumption and thereby to reduce the power bill.

Outlook

Despite subsidies and other fiscal benefits, the company enjoys lower operating margins compared to other players in the industry. BVCL enjoyed benefits worth Rs 14.83 crore from the government and still managed to earn profits of Rs 14.26 crore on a consolidated basis. Investors should take note of this while investing. Though the valuation on price and earning looks reasonable (6.52 times), the stock is a risky bet due to its regional presence and less efficient operations, compared to similar sized players in the industry.