Buy Shiva Cement with target of 20 in short term and 500 in long term

Recent Events:

Q3 December ended 2015 consolidated revenue up by 4% compared to Q3 2014. PBDIT up by 6% YOY. This is inspite of maintenance shut down of 23 days during the quarter and capitalisation of finance cost relating to expansion. For Q3 results click here

The Board of Directors of Shiva Cement Ltd at its meeting held on January 18, 2016, has approved / ratified the terms of appointment of

Merchant Bankers / Financial Advisers for negotiating with Strategic Investors for expansion plans of the Company as accepted by the Committee of Directors at their meeting held on November 02, 2015.

Company's board decides on 14/11/15 to issue 8 million equity shares at price of Rs.6 per share on
preference basis to non- promoter group. Link to the board minutes approving the said resolution http://www.shivacement.com/media_doc/bse-_outcome_of_bm141115_1448023315.pdf 

Share holders approval on above resolution is due at AGM on 18/12/15.

It may be noted that ACC with current 12% stake in the company falls in non promoter group and will increase its stake further with this issue to gain control on the company.

Effect of the preferential issue:  The proceeds of the issue will be used in reducing the high finance cost incurred by the company on outside borrowings and in expansion of capacity from current 0.15 mtpa to 2 mtpa which will automatically result in increase of revenue and PAT  by 3 folds from current levels.

Valuation: At current book value of 5.20 with pe multiples of just 3 the shares of the company under valued and in over sold levels at just 5 per share instead of valuation of 20 per share.

SCL entered into alliance with ACC in the year 2007. ACC participated into equity and nominated two directors on the Board. ACC also entered into marketing alliance with SCL.

There after, SCL submitted an expansion plan to Govt. of Odisha to expand the plant capacity upto 2.6 Mn.TPA in two phases. SCL also entered into MOU with Govt. to this effect. Now, it is implementing Phase-I expansion from 0.132 Mn.TPA to 1.0 Mn.TPA. Phase-2 shall be taken up after completion of Phase-1 with a time gap of minimum one year. SCL is managed by a team of experienced directors. They are assisted with team of professionals who are most valuable assets for SCL.

It has obtained several awards for it’s outstanding performances. SCL is owned by a large family of shareholders exceeding 40,000 in numbers. It is having idle assets in shape of surplus infrastructure, mining reserve etc., which will be fully utilized in forthcoming expansions. Thereafter, investor’s value shall be fully unlocked. Cement produced was earlier marketed under “Sumangal” Brand till 2007, but thereafter, it is being marketed under “ACC brand”. It produces 100% Portland Slag Cement (PSC) which is cost effective and environment friendly as well. Future Plans Expansion Plan Growth plans for next five years has been finalized envisaging 15 times growth of the present capacity in two phases. SCL already entered an MOU with Govt. of Orissa to this effect. This will facilitate statutory approvals, additional land, mines, water & power. Additional land and environment clearance has been already obtained for Phase-1 expansion upto 1.0 Mn.TPA. Phase-2 expansion above 2.0 Mn.TPA shall be taken up after completion of Phase-1 with a time gap of one year. Looking into rising cost of power, SCL is envisaging to add captive power plant in future clubbed with coal benefication facilities. Fly ash from the power plant shall be captively consumed for manufacturing PPC cement. However, this has been deferred looking into present constraint of coal supply and to keep focus on core activity (cement production) at present. Strategy Present capacity of SCL plant is only 0.132 Mn.TPA. Hence, such multiplication of capacity is generally associated with risk. Hence to mitigate the risk, SCL has entered into alliance with ACC for equity participation and marketing it’s product in the year 2007. Thereafter, it obtained all statutory approvals, acquired land and now Phase-1 expansion is ready to take off. In today’s competitive scenario, volume expansion has to be essentially clubbed with cost efficiency. Hence, the latest & modern technology for cement grinding has been selected with aim and target of entering into the league of “most cost efficient plant” in the country. Technology The conventional technology for cement grinding is inter mix grinding (clinker & slag/fly ash) in a Ball mill. Most of the existing plants (more than 90%) in the country are operating with such conventional technology. Grinding index of slag is higher than clinker. Hence, with inter mix grinding, the slag particle remains relatively coarser. Hydraulic property of slag improves with finer grinding. Clinker is to be ground at relatively lesser fineness, but with particle size control in the narrow range. Such different characteristic of clinker & slag necessitates separate grinding of clinker & slag with different fineness and particle size to give most optimum results and minimizing clinker cons. We have therefore, opted for separate grinding of clinker and slag. Ball mill is power guzzler. It has also limitation of slag grinding alone due to high moisture content in the slag and harder to grind. We have therefore selected Vertical Roller Mill (VRM) in lieu of conventional Ball mill; which is highly energy efficient. VRM is ideal for moist slag grinding and best suited for particle size control. With selection of latest technology, the clinker consumption will reduce by 15-18% from present level. Power saving on cement grinding alone will be more than 20%. In a composite cement plant, major portion of power, fuel & Limestone consumption is upto clinkerisation stage. Hence, by reduction of clinker consumption, the over all cost on per MT of cement shall be substantially reduced. This has been already established in few recent plants using this technology. In Phase-1 expansion, the existing Kiln shall also be modernized to improve it’s power & fuel efficiency. In Phase-2, a new Kiln with most modern technology in combination of VRM for grinding raw material and coal will be opted.  Since expansion plans in line with companies projections and renewed cement demand due to Govt promotion to infrastructure we place a strong buy at CMP  with above mentioned targets. Content Source: http://www.shivacement.com/index.php