Birla Corporation was recommended in the Choice Scrip column of DSIJ issue datelined March 17-30, 2008, at the price of Rs 220. The recommendatioh was based on the perked up valuation of the scrip, which had taken a 44 per cent beating despite being among the top ten cement manufacturers in the country. Also, the company had undertaken huge expansion aimed at doubling its capacity by 2010 in order to be ready to meet the growing demand in view of the increased spending on infrastructure in the country
Currently, the scrip is trading at Rs 184.45, down 16.15 per cent from the recommendation price and has failed
to live up to the investors’ expectation. The main reason is the suspension of operations at Durgapur Cement Works and Durga Hitech Cement, Durgapur, since March 12, 2008. Though the suspension was lifted on July 9, 2007, it impacted the quarterly performance of the company. In Q1FYO9, its topline declined 3.26 per cent to Rs 395.87 crore (from Rs 409.25 crore), while profits fell 5.80 per cent to Rs 91.82 crore (from Rs 97.48 crore).
Also, there are increasing concerns for cement companies like BCL, as rising input cost and economic slowdown are already hurting their margins. It is estimated that in FY09 and FY10, around 32 MT and 47 MT capacities are expected to added respectively. This would lead to drop in the price realization for cement companies. The uncertainty that hangs over the market right now prompts a more cautious than an audacious approach. Given the fact that the scenario for cement companies is iffy, it would be wiser to exit the counter when the scrip is in the upswing.
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