The Hindu Business Line : Dalmia Cement: Buy

INVESTORS can consider exposure in Dalmia Cement (Rs 209), as a restructuring of its business is likely. The company's fundamentals are also in good shape. This represents a shift in our stance on the stock.

We had suggested in mid-October that shareholders could use the sharp run-up in price to book profits when the stock settles on an ex-stock split basis.

We had also suggested that investors could consider a shift to Madras Cements, as pressures of new capacity could cap earnings growth at Dalmia Cement.

Investors who had acted upon this recommendation in November, when the stock had stabilised on ex-stock split basis, would not have lost, **both stocks have managed the same returns.

Though the concerns about the impact of capacity expansion on earnings growth remain, we have revised our view on the stock for the following reasons:

The company plans to vest its sugar business in a separate company, Ramnagar Chini Mills. It has taken shareholder approval for this move in the third week of November.

The objective is to create pure plays in cement and sugar, which are the main businesses of the company.

Sugar stocks have been on a roll over the past three months with several of them posting eye-popping returns.

In comparison, Dalmia Cement has risen by less than 20 per cent during this period. Even second-rung sugar companies have posted big gains.

This market trend could fast track the process of vesting the sugar business in the new company, which will also set up a new unit.

There have also been indications that the dual sales-tax system on cement prevalent in Tamil Nadu could be scrapped.

As Tamil Nadu switches to the Value Added Tax (VAT) system from April 1, the state-level fiscal policy is likely to become more favourable to the cement players in the state.

If the restructuring plans are given a concrete shape, there could be unlocking of value, as the stock now appears to be priced largely to earnings performance. We recommend a `buy' with a one/two-year perspective.

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