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Ashika Stock Broking
Kesoram Industries (Buy)
CMP: ₹122.95
Target: ₹176
Incorporated in 1919, Kesoram Industries has been under the leadership of late GD Birla, late BM Birla, and its current promoter, BK Birla. It has diversified business interests in tyres, cement and rayon.
Lower rubber prices and pick up in auto sector are the major triggers for the tyre business wherein the company supplies to major auto original equipment manufacturers in India as well as abroad. However, the bulk of revenue is driven by replacement market, which will see a strong rebound as the economy turns and demand revives. In cement business, the company sources limestone from its two leasehold mines (one each at both the locations) against royalty payment. The limestone reserves at both the mines extend beyond economic life of the respective plants. The said mines are located in proximity of the clinker plants, thereby enabling the company to optimise cost pertaining to its mining activities. With the creation of new State, we believe there will be strong pent up demand coupled with Government’s impetus to higher infrastructural activities.
The management is considering demerging the existing business into one or more divisions like cement and tyre. If the demerger materialises, then the cement business will fetch higher valuation, thus providing a re-rating to the firm value.
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