The Hindu Business Line : BOC India: Hold

A positive sentiment on the earnings potential has led to a 30 per cent surge in the stock price since the beginning of September. Further appreciation from these levels appears unlikely.

Potential higher volumes in the bulk consumer business along with higher realisations in the merchant market augur well for its earnings prospects.

BOC is among the larger suppliers of industrial gas in India, competing with other global players present in India through subsidiaries and joint ventures.

BOC derives about 75 per cent of its revenues from gases and 23 per cent from its project engineering division.

It produces a variety of gases for industrial purpose including oxygen, hydrogen and acetylene.

Though its prospects depend largely on the steel industry, it has over the years spread its risk across diverse sectors such as petrochemicals and healthcare.

A doubling of revenues and an expansion in margins in its project engineering division contributed to a surge in the company's earnings in FY05. Higher offtake from the gases division also helped.

The trend has continued into the first quarter with a revenue growth of 33 per cent and earnings more than doubling, thanks to widening margins in the merchant market and higher offtake in the bulk business.

The restructuring of its operations, which began in FY-03, has just been completed and would lend greater focus to the bulk business. The business segments have been categorised into process gas solutions catering to bulk consumers and industrial and special products serving the merchant market.

The erstwhile project engineering division has been incorporated into the process gas solutions division. Of late, BOC has been relocating its plants to unlock real estate value; the proceeds would part-fund its expansion plans.

Industrial gas is used mainly by the steel sector in the blast furnace to increase the operational efficiency of steel production. With the steel sector lining up a slew of investments to meet the increasing domestic consumption, there should be a sustained growth in the demand for industrial oxygen.

BOC has been increasing its focus on the South; in November 2004 it entered into a contract to supply industrial gases to Jindal Vijaynagar Steel, which has been sourcing its requirements from Praxair.

BOC plans to spend about Rs 200 crore on this project, which would have an air separation capacity of 1200 tonnes per day (tpd).

The project, to also cater to the merchant market, is expected to be operational by March 2006. The company also plans to relocate its operations from Tamil Nadu and set up in Andhra Pradesh a Rs 100-crore 100-tpd air-separation unit, which would cater to the merchant market.

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