The Hindu Business Line : Bihar Caustic: Buy

Bihar Caustic derives its revenues almost entirely from the chlor-alkali business. The operating margin at 43 per cent for FY-05 exceeded that of its peers.

Bihar Caustic, like its competitors, was impacted during the industry's cyclical downturn.

However, the commissioning of the captive power project bolstered the operating profit margin which has been consistently hovering around 38 per cent since FY-02.

About three-quarters of the revenues comes from its group companies, primarily Hindalco, its holding company.

With the aluminium major on a growth path, Bihar Caustic is assured of business through commodity cycles. Bihar Caustic's power and fuel costs, which account for 24 per cent of sales, are lower than that of its competitors which stand at around 30 per cent.

Bihar Caustic meets a large part of its energy requirements from a captive facility using coal as the feedstock, which is the primary reason for the lower energy cost component.

Bihar Caustic, however, incurs a higher raw material cost on account of logistics involved in transporting salt to its Jharkand plant.

Aided by higher realisations on caustic soda and a lower interest component, the Bihar Caustic reported a 100 per cent growth in earnings for 2005-06 first quarter.

With domestic prices of caustic soda expected to remain stable on account of growth in the paper and aluminium sectors, the company is likely to maintain its margins at these levels.

The anti-dumping duty imposed on imports from China, South Korea and eight other countries have also aided the rise in prices of caustic soda. This is under review, and if the duty is removed, realisations may be affected.

Hindalco holds a 51.27 per cent per cent stake in Bihar Caustic, while other Birla group companies hold 5 per cent.

This is after a mandatory open offer to public shareholders made this June at Rs 23, including the interest component. The offer received lukewarm response.

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