Kesoram Industries: The KM Birla Effect!

When in March this year, the price of Kesoram Industries dropped to Rs 100-110, the sensex was at 8000. Now at 15000, Kesoram Industries has outperformed the market significantly when it trades at Rs 355. Reason? BK Birla's succession plan gives Kesoram Industries to KM Birla, the superstar Birla.

So, what IS this Kesoram Industries- someone may ask. Kesoram Industries is the flagship firm of the BK Birla group. It is a company with interests in cement, tyres and rayon. Well, i am simply opinionating when i say that Kesoram may later be merged with AB Nuvo or Grasim- as they span over similar verticals. On the other hand, it might not happen at all- given the possibility of some clause in BK Birla's succession plan. In either case, what is true is the fact that the control of Kesocorp is going to KM Birla. And while that premium has been priced in the cost of the share of Kesoram Industries, which trades at a tremendous premium at the moment, there is further scope for inflation in this scope. Kesocorp had reached a high of Rs 675 in 2007. That was in 2007, and in 2007, the numbers of Kesocorp were not astronomically better than what they are now. In 2007 (end), the EPS was Rs 83 and in 2009 end, the EPS was Rs 82. Now, given the difficult times that the company faced in 2008, and the relatively easier business scenario in 2007- the company has come out stronger in these difficult times. The topline has risen consistently over the years. In FY07-08, net sales were Rs. 3440 crores. These rose to Rs. 4292 crores in FY08-09.

But, before you go on to buy this stock, you should understand that these positives have been priced into the premium that is going around with this stock at the moment, when it trades at Rs 355. The stock has risen like a rocket in the past one month, with absolutely no bad news nearing it at all. The Q4 profits saw a dip of 17.6%, but the topline grew by more than 20%. With the automobile market improving, tyre manufacturers are going to find better days ahead. Also, when foreign car manufacturers will be shifting bases to low cost destinations like India, OEM market for auto ancillaries and tyres in India would be booming. So there are further chances of increase in the topline. One may buy this if he is overly optimistic about the markets at the moment, and if one doesn't mind buying into an already inflated stock. I would recommend to watch this stock, and buy on dips.