11 Scrips To Light Up Your DIWALI

As we near the fag end of the year 2009, the festivities begin and we prepare ourselves to celebrate Diwali - the festival of lights. But for the market the celebrations have already begun as the Sensex has not only crossed the 15000 and 16000 levels but even tested the 17000 level. With the markets staying strong, the investor fraternity too would be looking forward to starting the New Year on a positive note. But it’s quite interesting how things have changed so fast so soon. In the year 2008, when many market pundits wrote doomsday prophecies for the global economies and markets, the resurgent economies have already scripting brighter chapters for the markets.

But as we look ahead into the future, we cannot forget the past and it’s time to take a quick recap of how things have changed since last Diwali, although many would question the wisdom of looking at the darker side at a time when things are looking bright and the mood is quite upbeat. But we believe it is not only important, but it is also quite informative and educative to look at and learn from the two contrasting pictures of pessimism, despair and dejection on one side and cheer, optimism and happiness on the other.   Diwali 2008 was a gloomy one for the investors as the US subprime crisis spread a wave of pessimism amongst investors across the globe, including India, whereas Diwali 2009 would be joyful with the markets bouncing back globally on earlier than expected recovery in global economies. Hence, the benchmark Sensex, which was down by more than 58 per cent last year, is up by 71 per cent this year (refer table). Sensex was around 9000 level last Diwali, while currently it is trading at 16,959 level. If that was not enough, the FIIs last year were net sellers to the tune of Rs 48,500 crore on year-to-date (YTD) basis, while this year, they have been net buyers to the tune of Rs 57,387 crore on YTD basis, which is also the highest FII investment since year 2007 when the FIIs had pumped in more than Rs 71,000 crore. And with still over two months to go this year, there is a possibility that the FIIs could break their previous record. Now, the million dollar question is: will this rally sustain going forward? We, at DSIJ, feel that the market is in an uptrend, although there could be some intermittent corrections which could discharge the froth built into the valuations. To get a clearer picture of the market in the near term, we analysed the market performance on successive Muhurat days and also one month after the Muhurat day. It is interesting to see that the Sensex has dipped marginally four out of five times in the last five years on the Muhurat trading day. However, just one month after the Muhurat day, the Sensex has only moved up with minimum gain of 4.52 per cent and maximum gain being 12.5 per cent, barring year 2008. Thus, applying this logic on a conservative basis, Sensex in the next few months should be at least around 17700-17800 points. Besides, we have also mentioned in our previous issue’s cover story that we expect Sensex to be at 21,000 by March 2010. Hence, in order to make the most of this opportunity we have constructed a Rs 10 lakh portfolio for our readers consisting of 11 scrips that we believe would do well in the next one year. We are also reviewing the performance of our last year’s Diwali recommendation. DSIJ’s Editorial Team wishes all its Readers a Very Happy Diwali and a Prosperous New Year.   
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COLGATE-PALMOLIVE

Colgate Palmolive is back on our ‘buy’ list after a long time since we had not been recommending this counter because of its valuations concerns. But looking at its recent financial performance it’s back on our list as we feel that Colgate will provide capital appreciation to investors in the next one year’s time frame. Our optimism about the counter comes from various factors. First, the company is a market leader and has been improving its market share in all the three major segments viz. tooth paste, tooth brush and tooth powder. In the tooth paste segment its market share was at 52.3 per cent for the period January to May 2009 while in tooth powder the same stood at 48.8 per cent. Its share in the tooth brush segment for the same period was at 38.2 per cent.

In all three categories the company saw its market share improving by 100-200 basis points over the March 2009 figures. This gives us the feeling that the company is heading for better financial numbers. What also makes us excited about the counter is that the company is expanding its reach through doctors and customers which would result in higher consumption of tooth powder and tooth paste. This should bring in better volume growth for the company. In the first quarter of the current financial year Colgate saw its volume improving by 14 per cent. This is a good growth number considering the fact that the tooth paste segment is a highly penetrated segment.

On the other hand, the company is actively managing its cost components and that is driving its margin towards the top.

The company also has products in the personal care segment with Palmolive being a reputed brand name and Axion for home care. But the revenues from these two segments are not so significant and have not been considered here. As for the financials, the company has seen constant growth in its net profit in the last 10 years with March 2009’s net profit at Rs 290.22 crore, thus providing an EPS of Rs 21.34. In the first quarter of the current financial year, the company’s EPS stood at Rs 7.56, a jump of 43 per cent over the same period. We believe that the company should report net profit in the region of Rs 360 crore for the full year. On an equity capital of Rs 13.60 crore its EPS would be Rs 26.5. The current market price of Rs 648 gives a P/E of 24.4 times which is quite less for a company that is going above 30 per cent in EPS. Also, Colgate has lower beta value and hence ensures stability in the portfolio.

SYNDICATE BANK

Syndicate Bank (SBL) is a mid-sized PSU bank with the eighth-largest branch network and tenth-largest asset book among Indian banks. It has 2,231 branches across India and 96 per cent of its business is covered under core banking solutions. We are positive on the long-term growth outlook of SBL given its wide network and improving fundamentals. SBL has evolved from being a strong regional player to a formidable national player and now has a global business worth Rs 1,99,686 crore. An important factor here is that its business growth has been good despite the difficult macro environment. While its advances continued to grow well at an above industry rate of 30 per cent on a YoY basis to Rs 83,367 crore, the deposits grew 27 per cent YoY to Rs 1,16,319 crore.
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However, its focus on expanding the balance sheet at the cost of margins impacted its net interest margins (NIM). As a result, its NIM for Q1FY10 stood at 2.23 per cent as compared to 2.34 per cent in Q1FY09. But the margins are expected to improve. Its low cost CASA deposits ratio as on June 30, 2009 was only 29 per cent but SBL has been running a special CASA campaign since July to improve on this front. This will help the bank improve its NIM. Further, the bank has recently raised Rs 5,000 crore primarily meant to replace a part of its high-cost deposits that came up for renewal. Additionally, we expect margins to improve by H2FY10 with better pricing and revision of lending rates. Its lower operating expenses are also a beneficial factor and it can be seen that its cost to income ratio now has reduced drastically to 42.50 per cent as compared to 54.40 per cent in FY09. Its asset quality, including restructured assets, remains at comfortable levels. While the gross NPAs declined to 1.91 per cent from 2.84 per cent in Q1FY09, its net NPAs declined to 1.02 per cent from 1.03 per cent. The bank’s capital adequacy is comfort-able at 13.4 per cent (Tier-1 capital at 8.1 per cent). We feel that the current valuations are compelling and the risk-reward remains favourable for investors at its current inexpensive valuations. The management is quite confident of producing around 18 per cent average return on equity (RoE), supported by strong asset growth and low operating expense. At its CMP of Rs 87 the scrip is trading at just 1.05x of its adjusted book value. This is much lower than other similar banks like Andhra Bank at 1.33x and UCO Bank at 1.45x. Given these decent valuations and its growth prospects, we believe the stock offers good upside potential. Our recommendation to investors is to buy the counter at current levels with a target price of Rs 110 in the next one year.

RANBAXY

Ranbaxy, one of the biggest generic pharmaceutical companies in the world, has got its act together to pull the company back from the abyss it slipped into last year due to a slew of bad incidents. The result is clearly visible in the company’s stock performance, which has outperformed both the Sensex and BSE Healthcare by a huge margin since the change of management in May 2009. Since May 25 the share price of Ranbaxy has gained by 85 per cent in comparison to 22 per cent and 29 per cent by Sensex and BSE Healthcare respectively. The management has been trying for an early resolution of issues with the USFDA that has imposed regulatory clamps on the manufacture of certain drugs at its two sites in India viz. Dewas and Paonta Sahib.

Ranbaxy hold a first-to-file (FTF) status for the abbreviated new drug application (ANDA) for Valtrex and Flomax from its Dewas facility. This FTF status gives it a six-month sales exclusivity in the US, meaning it would be the only company other than the innovator to market the product in the country during this period. The combined potential market for these drugs will be around USD 300-350 million. The company has asked USFDA to re-inspect its Dewas facilities and hopes to start exporting drugs by December 2009, though the exact time and duration of such inspection is not clear.
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Meanwhile last year’s acquisition of the promoter’s stake in the company by Daiichi Sankyo has started yielding fruits and a recent announcement stated that Ranbaxy would start marketing Daiichi Sankyo’s products in Mexico.

This stands testimony to the potential synergy that may unfold in the future. Additionally, this is not the first time that the company has been marketing its holding company’s product. Prior to this they already had such tie-ups in Romania.

One of the factors which led to the company posting the largest ever loss last year was the volatile forex market. In CY08, Ranbaxy’s loss on forex derivatives was Rs 784.3 crore along with a hit of Rs 171.5 crore which was the foreign exchange loss on loans. Nevertheless, with the current relative stability in the forex market, things are now improving and the company posted forex gain in H1CY09. That apart, what is worth noting is that it has returned into operating profit this quarter after two quarters of operating losses. So one can invest in this stock with a long-term perspective and expect healthy returns over the next 12-18 months.

SBI

State Bank of India, the biggest lender of the country, is also one of our best bets for investment in the early stages of economic revival and industrial activity picking up. It is expected that credit off-take, which remained muted until H1FY10 and was hovering around 14-15 per cent, is likely to gain momentum in the second half of the current fiscal. The bank is equipped with enough liquidity to exploit this opportunity. Over the last three quarters, liquidity on the bank’s balance sheet has increased sharply, owing to the sharp rise in deposits and lack of lending opportunities. This has resulted in a sharp drop in CDR from 80 per cent at the end of September 2008 to 71 per cent in June 2009.

This higher level of liquidity in its balance sheet has adversely affected the net interest margin (NIM) of the bank which was 2.3 per cent at the end of June 2009 and is down by 73 basis points and 63 basis points on yearly and quarterly basis respectively. We feel that the NIM has bottomed out and will improve sequentially. This will be due to re-pricing of some of its high-cost deposits and loans. The rate charged on fresh credit could be higher, and that should boost margins. The bank has already lowered deposit rates on half-a-dozen occasions during the cur-rent financial year and has now begun raising interest rates on corporate loans by up to 50 basis points. SBI is aiming to reach NIM of 2.55-2.6 per cent at the end of FY10. The impact of cut in lending rates on interest income was immediate but the benefit of cut in deposit rate takes time.

Non-interest income, which forms 36 per cent of the bank’s net income, has helped the bank to maintain its profit last quarter. Furthermore, we believe that the hardening of the interest rate will not impact its performance to a great extent. A major part of this comes from fee income and treasury operation shares just 20 per cent. Moreover, most of the bank’s investment book has been hedged up to the yield of 7.5 per cent. The only concern right now is the quality of its assets quality which has deteriorated. Currently its NNPA is 1.55 per cent, up from 1.42 per cent (Q1FY09).
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The overall restructured loan book of the bank is 3.8 per cent of its loan book. We believe that with economic recovery on the cards the asset quality will be taken care off. Therefore, we suggest our readers to invest in the stock with long-term view.

SRF

SRF Limited is a fully diversified company of the Bharat Ram Group having interest in businesses like technical textiles, refrigerants, engineering plastics, industrial yarn and packaging films. The company enjoys a leadership position in various segments like tyre chord (essential product for the production of all types of tyres), refrigerants and belting fabrics where it has market share of 38 per cent, 40 per cent and 60 per cent respectively in the domestic market. Apart from this, in the flagship tyre chord business, it is the second largest producer of tyre reinforcements globally. The company also enjoys leader-ship positions in engineering plastics and industrial yarn, two businesses recently acquired by the company from SRF Polymers Ltd at a consideration of Rs 150.31 crore.

As far as its packaging films’ business is concerned, the company has a capacity of 25,000 tonnes and it is on the verge of doubling its capacity with a capex of Rs 165 crore. Though the company’s businesses had been badly hit by the global slowdown, it was able to cope up with that pressure due to its diversification into various sectors. The company has shown clear signs of recovery and is now in an expansion mode. It plans to invest Rs 600 crore in the coming one to two years for the expansion of various businesses. As per the spokesman of the company, Rs 57 crore has been earmarked for establishing a laminated fabric plant at Kashipur. That apart, expansion of the tyre chord plant at Gumidipoondi, Tamil Nadu is being done at a cost of Rs 186 crore to accommodate polyester industrial yarn (PIY), which will help the company to enter into the segment of radial tyre and reinforcements for V chord belts.

The company is also investing Rs 30 crore in the fluorospeciality business, which will have an initial capacity of 400 tonnes and Rs 165 crore would be invested for the expansion of its packaging films’ business. The best part of this expansion is that the company will finance these expansions mostly with its internal accruals as it has enough funds available with a debt equity ratio of just 0.96x. The company’s export business is also showing signs of improvement on the heels of global recovery. A point worth noting is that in the refrigeration and packaging business a major part of its volume is driven by exports with 80 per cent volume of refrigerants’ business coming from export to 45 countries.

The company has also acquired two foreign entities, one in Thailand and the other one in South Africa under its technical textiles business. Financially, the company’s operating income has touched Rs 497.97 crore in the first quarter, higher by 20.20 per cent QoQ basis from the March 2009 and 5.8 per cent more on YoY basis, which shows a clear sign of recovery.
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In 2008-09 the sales of its company flagship technical textile business fell from Rs 914.87 crore in 2007-08 to Rs 905.24 crore in 2008-09 principally on account of lower sales in H2 2008-09 due to global slowdown on account of lower sales of tyres resulting from a slowdown in the auto sector, de-stocking by tyre companies, and fall in goods movements by trucks. As TTB contributes approximately 50 per cent to the total sales of the company, the management is of the opinion that the demand for tyres would be robust in the domestic markets considering improvement in road infrastructure.

In the same way, in its chemical business the company has now fully phased out CFC and has begun to focus on HFC22 and HFC134a which will give it a good advantage. The price fluctuations have also subsided as far as finished products are concerned. The company has netted an operating profit margin of 35.94 in the first quarter, which is quite high in comparison to March 09 (7.46 per cent) and December 08 (22.79 per cent). Its net profit margin has also improved substantially to touch 18.50 per cent. Currently the company scrip is trading at a PE of 6.88x at Rs 185, which is just 1.22x of its book value. The scrip’s 52 week high and low stand at Rs 201 and Rs 62 which make it a good purchase. In 2008-09 the company posted an operating income of Rs 1,813 crore which was 11.6 per cent more than the previous year. Considering all the above, the company seems to be posting a good show in the coming quarters as well.

CESC

India is a power deficit country and the gap is only increasing day by day. Based on this factor we are recommending CESC which is a RPG Group company based in Kolkata with a total capacity of 1,225 MW. The basic reason behind recommending CESC is its monopoly in power distribution in the Kolkata region. The best part is that while the company has a capacity of 1,225 MW the demand stands at 1,500 MW and with a plant load factor of 97 per cent the company has been utilising the opportunity to the fullest. The rising demand is a beneficial factor for the company and the recent addition of 250 MW will act as a catalyst for growth. Increased per unit realisation is also an advantageous factor for the company. In Q1FY10 its tariff per unit increased to Rs 4.09 from its earlier level of Rs 3.91 in FY09. Another noticeable factor is that CESC has managed to reduce pilferages every year since 2003 and it now stands at just 3.30 per cent. As a long-term strategy CESC is increasing its capacity to 6,500 MW by March 2014 with a total capex of Rs 21,900 crore, but this is a very long term plan.

CESC also has subsidiary called Spencer’s Retail (SRL) which has 225 retail shops including 18 supermarts spread over 1.13 million sq feet. Till date SRL has been drawing blood from the company. But if we look at the Q1FY10 results, Spencer has reported some sign of performance improvement with reduced cash losses. This was mainly due to higher revenue of Rs 750 per sq feet in Q1FY10 as against Rs 660 per sq ft in Q4FY09. Further, till date SRL’s 72 per cent revenues came from low margin FMCG and groceries. But in order to expand margins the management plans to focus on apparels. Its property business is gearing up its activities too. Going ahead, value unlocking may happen in these segments. However, it is too early to assign any value to this business.
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On the financial front, with increased tariff and capacity, for FY10 the company is expected post a topline of Rs 3,580-3,600 crore and the bottomline is estimated at Rs 480 core resulting in EPS of Rs 38 and providing P/E of 9.90x. Its EV/EBITDA stands at 5.80x. Our recommendation to investors is to buy the scrip with a target price of Rs 475 in the next one year .

HCC

Hindustan Construction Company (HCC) is primarily engaged in EPC (engineering, procurement, construction) with projects that span across diverse segments such as transportation, power, urban infrastructure, etc. It also has interest in developing annuity road BOT, building commercial properties and townships. HCC being a major player in the infra-structure development will be a key beneficiary of the government’s special thrust for infrastructure development. It is expected that USD 100 billion will be invested over the next three years in the infrastructure sector. Another factor that assures the company’s future performance is its healthy order book and hence better earning visibility.

Currently the company’s order book stands at approximately Rs 16,300 crore that is 4.5 times’ the sales of FY09. A major portion of this order backlog is from hydropower which accounts for 51 per cent of the total order book. One of the benefits of the tilting of the order book towards hydropower, from 38 per cent in FY06 to 51 per cent currently, is that it helps the company to improve margins because hydropower projects carry margins as high as 15 per cent. Another factor which will help the company to expand its margins is the stability in the commodity market. This will lead to reduction in cost of raw material as well as improve the working capital cycle. The effect of this has been reflected in the company’s last quarter performance wherein the EBIDTA margin increased from 10.5 per cent (Q1FY09) to 12.8 per cent (Q1FY10). One of the concerns for the company was its high debt to equity ratio of 2.3 times at the end of FY09. But in FY10 this might come to an acceptable level as the company has raised Rs 480 crore through QIP at a rate of Rs 102.15 per share to repay the debt. Last but not the least, the company will unlock values for its shareholders through listing of shares of one of its subsidiaries, Lavas Corp., which is developing a hill city over 12,500 acres near Pune and is valued at Rs 10,000 crore. HCC’s stake in the project is 64.99 per cent. Thus, we advise our readers to invest in the scrip this Diwali and expect a 20-25 per cent capital appreciation in the next 12-18 months.

LARSEN & TOUBRO

When it comes to recommending an engineering counter there is no better pick than L&T as this is one company which has time and again proved its mettle to the investors. L&T which has already overcome many cycles in the past has again managed to over-come the difficult scenario with much ease. Its strength is vindicated from the fact that despite the weak macro economic scenario L&T continues to build its order book. Its current order book stands at Rs 71,653 crore (almost 2.08 times of its FY09 revenues) and provides a good earning visibility. Till date L&T has announced around Rs 20,000 crore orders and the order inflow is expected to be sustained. Here the capex of Rs 6,000 crore will improve its execution capacity. Further, the company is also expecting orders from the nuclear power segment. Here we are of the opinion that being an industry leader L&T will be the biggest beneficiary of the recent infrastructure push.
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Further, till last quarter, reduced export orders were a drag on its order book. But with the revival in global economy the export orders are also expected to improve. We also see value unlocking for investors in the coming years if L&T opts for listing its subsidiaries. L&T has subsidiaries like L&T Infotech (100 per cent) and L&T Finance.

As and when L&T makes them public, there will be immense value creation for the investors. We are of the opinion that even if L&T does not take a primary market route it may de-merge the entities the way it did for Ultratech Cemco. Another factor is that it also holds value through other subsidiaries like L&T IDPL as also ECC and EPC, its joint ventures with manufacturing associates and foreign subsidiaries. Last but not the least, its stake in Satyam Computers which created a dent in its investment portfolio has turned profitable as L&T will now make a profit of more than Rs 283 crore. Its average buying prices for 8.12 crore shares is just Rs 79 as against its CMP of Rs 114. On the financial front, L&T has performed well in the past. Further, the Q1FY10 results indicate towards improved margins and with a maintenance of 20 per cent revenue growth guidance for FY10 we expect the company to post topline of Rs 40,500 crore and bottomline of Rs 4,050 crore resulting in an EPS of Rs 69 providing P/E of 23.91x.

Hence our recommendation to investors is buy the scrip with a tar-get price of Rs 2,030 in the next one year.

MPHASIS

Mphasis seems to be the perfect pick that has the potential to lighten up your Diwali this year. It is one of the leading IT/ITES solution providers and it caters to its clients through three major segments, i.e. the application services, BPO services and infrastructure technology outsourcing services which contribute around 64 per cent, 18 per cent and 18 per cent respectively to the total revenues. Because despite the gloomy scenario the company has managed to post quite a fantastic financial performance with 42.5 per cent growth in topline to Rs 1,105.6 crore (Rs 776 crore) for quarter ended July 2009 (its accounting year ends in October), while the bottomline grew by a whopping 127.7 per cent to Rs 229.2 crore (Rs 100.7 crore).

This performance was purely driven by application and the infrastructure technology outsourcing services, whose revenues increased 42.32 per cent and 87 per cent respectively on account of increased volumes, improved pricing, higher mix of premium and value added services. That apart, what gives an edge to Mphasis is the HP tag it has. Mphasis is a HP company with Hewlett-Packard (HP) acquiring EDS, its majority stakeholder in May 2008. HP contributes around 71 per cent to the total revenues. Mphasis being a subsidiary of HP, it opens up a new market for it, where it can focus on increasing its business from HP and try to become one of its preferred vendors in the coming years. Further, Mphasis recently acquired the captive unit of AIG.
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This will not only improve its overall revenues on a consolidated basis, but also help strengthen its BFSI segment. However, the management hasn’t given any statistical data on what was the consideration paid and on how big this AIG captive is in terms of turnover. On the financial front, Mphasis could post revenues and profits of around Rs 4,175.6 crore and Rs 877 crore respectively for FY09. At these estimates Mphasis generates EPS of Rs 42 thereby resulting in a P/E of just 16x. This we believe is low and therefore makes it a good buy at its CMP of Rs 667 with a one year target price of Rs 840.

TULIP TELECOM

Tulip Telecom (TTL) is a data telecom service provider that offers last mile connectivity to its customers. Corporate data connectivity (MPLS/IP VPN) is its major segment and contributes 66 per cent to total sales, while network integration generates the rest. TTL is a market leader in MPLS/IPVPN with 38 per cent market share, while it is amongst the top five network integrators in the country. But what differentiates TTL is its urge to become a one-stop solution for corpo rate data connectivity, wherein it could not only provide the above-mentioned services, but also provide managed ser-vices and other value-added services. Thus with the entire gamut of services being provided under roof, it would be but obvious that TTL, will become a preferred choice for corporate.

But the game-changer for TTL is its focus on the enterprise data market (EDM) beyond the IP/VPN, which is the high margin high bandwidth market. This move enables it to address 100 per cent of the enterprise data market and provide services beyond just IP/VPN (i.e. 64 KBPS to 2 MBPS) on wireless, which is 18 per cent of EDM. Thus it increases the addressable market to Rs 7,500 crore from its earlier Rs 1,300 crore. TTL is already extending its data connectivity by rolling out optic fibre network in ten key commercial business districts (CBDs) in India, which it believes covers 90 per cent of the total high bandwidth clients (i.e. between 2 MBPS to 155 MBPS). Once completed it will shift TTL’s revenues to a different trajectory altogether. For FY09, TTL’s topline and bottomline increased around 33 per cent to Rs 1,608.28 crore (Rs 1,216.44 crore) and Rs 249.58 crore (Rs 187.30 crore) respectively. On trailing twelve months’ profits, TTL is available at a P/E of just 10x. This looks attractive for a company which has not only shown fantastic performance in the past, but is expected to perform even better in the coming years. However, its EV/EBIDTA valuations are bit steep at 10x and yet we feel it is justified for a briskly growing company such as TTL. One can buy at its CMP of Rs 940 with a one year target price of Rs 1,200.

ORIENT PAPER

Orient Paper and Industries (OPIL) is a name that doesn’t seem to do justice to the diversified nature of this company, nor indicates a business that has been silently driving its growth. With 59 per cent of its revenues coming from the cement segment, OPIL is essentially is a cement company, with consumer durables and paper forming the remaining two segments with sales contribution of 23 per cent and 18 per cent. With a massive Rs 620 crore expansion (Rs 320 crore for cement, Rs 180 crore for captive power and Rs 120 crore for paper) this company seems right at the inflexion point wherein we would now see its revenues spinning into a different trajectory alto-gether.
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That apart, with 11 per cent volume growth of fans compared to 2.5 per cent industry standard in FY09, OPIL has put up an impressive show in its consumer durable segment as well and the June numbers were no different as this segment’s revenues grew by 34 per cent. Secondly, the only concern for OPIL was its paper segment, whose performance suffered in FY09. But we believe the worst seems to be over for OPIL as the company has undertaken a planned shutdown and long-term corrective measures in Q1FY10 to fine-tune its paper segment. Hence the downside risk for OPIL is quite limited.

Finally, on the valuation front, OPIL is available at an EV/EBDITA of just .98x, which we feel is quite low. Besides, even if you take the total enterprise value and divide it with the cement capacity, OPIL is available at EV/tonne of mere USD 58, which is quite cheap when compared to the replacement cost of around USD 100/tonne, while other businesses such as consumer durables and paper are almost going free with it. We also believe that OPIL should consider de-merging its business into three companies with cement, paper and consumer durables as separately listed entities. This we believe will expand the valuations for the company. The scrip could now catch up with the valuations and hence it makes a good buy at Rs 53, with a one year target price of Rs 72.