Birla Corpn.

Bought by the sack

There is no humbler thing to own than a bag of cement, and few businesses Graham would have recognised more quickly. Birla Corporation, part of the old M.P. Birla group, makes cement — the grey powder behind every wall, road and bridge — with a small jute business beside it. Cement is heavy, local and cyclical: when building booms the kilns run hot and profits swell; when it slows, the same plants sit half-idle. The investor's chance comes in the slow seasons, when a sound maker can be had for less than its bricks and mortar are worth.

That is roughly where this one sits today.

A maker at the price of its assets

The plainest fact is the most Graham-like: the shares trade at about one times the book value of the company — you are buying its plants, kilns and limestone reserves for roughly what they are carried at on the books, and being handed the business on top. At under fourteen times depressed earnings, against a far higher multiple in better years, the price reflects a cycle near its low rather than a business in decline. The company pays a steady dividend of about one per cent and keeps a fifth of its profit flowing to owners.

Here the margin of safety is the oldest kind there is: tangible assets bought near their recorded worth, so that one leans on what the company owns rather than on what it might earn next year.

What weighs on it

Honesty demands the other side. The returns this business earns are poor — under eight paise on a rupee of owners' capital — because cement in a soft patch is a hard way to make money, and its sales have barely grown for five years. Profits have lurched, collapsing and then rebounding off a low base, which is the nature of the cycle. It is a regional player set against larger, lower-cost giants, and its fortunes wait on a building recovery it does not control.

What this asks of you

Reckon on a year or two of patience, for this is a cyclical bought in its winter. The thesis is that a cement maker priced at the worth of its assets, earning little only because the cycle is low, is worth more once construction quickens and the kilns run full again. The protection is the asset value beneath the price; the risk is a cycle that stays soft longer than the buyer's patience. Buy it as you would a sound building offered at the price of its land — cheaply, calmly, and prepared to wait.