Start Ferro Cement(SFCL) is the demerged cement division of Century ply. They are the dominant player in the north eastern region. Their market share in north east region is around 26%. North-east being a difficult area to operate, we believe that SFCL will continue to dominate in this region.

North-east region continue to receive financial incentive from the government for the next 6 years, which will give a competitive edge to the companies operating in this region.

SFCL has currently a capacity of 3.4 MT , with 2.6 MT of clinker capacity. The company is planning to expand and install its 1 MT grinding unit in West Bengal. With this, they will have better access to west Bengal and subsequent areas.

SFCL has strong distribution network of 8700 retailers and 2380 dealers, which spread across 11 states.

Limestone mines are located within 2-3 kms of the plants, providing strong raw material linkage, easy accessibility and uninterrupted supply of raw material. SFCL also has a captive power unit, which ensures non-dependency (or low-dpendency) on grid power.

The company’s debt has however increased over the last financial years from Rs 692 crore to Rs 749 crore. We expect that the debt will be around this level or at a slightly higher level because of the capex planned in the current financial year.

In the financial year 2015-16, it has recorded a turnover of Rs 1715 crores, an increase of 19.89% over the last financial year. It registered a net profit of 91.97 crores, an increase of 15% over the previous financial year. EBIDTA margin has declined by 735 bps to 23.1%. EBIDTA margin has impacted mainly because of lower realization and higher freight cost.

We believe that North East area will be a major thrust area for the government in terms of infrastructure. And hence we foresee significant demand in cement going forward. The realization also should improve from here on. SFCL after achieving a level of Rs 170, currently hovering at around Rs 105. The stock can be bought with a first price target of Rs 130 and a second price target of Rs 150 in the next six to nine months.

NSE Code : SFCL

BSE Code : 536666

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