This company is not about some niche story. This is a case of sheer undervaluation of stock. Again this is no great analysis. I just managed to chance upon the stock. If one of you would have looked at the financials I think you too could have recommended this stock as an investment opportunity.
Website : Southern Ispat & Energy
This was just one of the companies till the end of FY09. However, it is after FY09 when the management started taking a more aggressive strategy. And thus last year that is FY10 has been stellar.
Lets just give you pointers to what I saw.
a) Revenues have grown from Rs 39 odd crores in FY09 to 272 odd crores in FY10 (about 7 times)
b) Profit before interest and tax has grown from Rs 1.56 crores in FY09 to Rs 9.78 crores in FY10 ( about 6 times)
c) PAT has grown from Rs 0.73 crores in FY09 to Rs 7.33 crores in FY10 (10 times increase)
d) However during the same time the interest has gone up from Rs 52 lacs to Rs 62 lacs. The interest numbers not going up too much suggests that the growth is not burdened by debt.
If you look at the 1st quarter numbers they seem to vindicate that the company is clearly on a growth path.
(June 2010 results). Don't think these would need any further analyses.
Now what has the market done to its share price for all this announcement.
The price has plunged from Rs 48 odd levels in January 2010 to about Rs 13.
This means a PE of about 2 and a market cap of about Rs 14.5 odd crores based on June 2010 shareholding pattern. (1.1 crore shares X Rs 13)
So what next is in store for us. The following news flows could give some pointers to the future prospects of the company.
a) Meger of privately held Kerala Sponge with itself
b) Own power generation through waste heat recovery in the steel plant as well as coal based plants.
c) Purchase of company in Gujarat. (Management interview)
Some digging on the name of the target company revealed the name Newtech Forge & Foundry Limited. (Source link) - DealCurry.
You can check out the website of the target company on this link. (Newtech)
What does all of this mean?
a) The company is integrating both backward and forward and this am sure will be reflected in the financial performance in future.
b) It is also alive to the opportunity that generation of power presents in current times.
c) The forward integration is infact even more interesting when the product portfolio of Newtech is looked at.
Did someone mention getting into auto parts manufacturing? Well if the entire company is being acquired then that is what is going to happen.
The board meeting on 7th April 2010 gives us some insights into how all this expansion will be funded. (Link)
You can imagine the scale of expansion.
The company has just recently concluded a GDR issue of about 3.23 crore shares.
Some of you all must be worried by now about the extent of promoter contribution. Yes, you are right it is quite low. Its about 20% and has remained constant all these years. Frankly, I dont know why it is so low. But my hunch is that in future with the merger of Kerala Sponge the promoters share should go up as Kerala sponge is a privately owned company. Secondly I think the fall in share price could also be because the management wants to mop up shares at a low price.
Now the interesting bit. On 27th of May 2010 1 crore warrants were issued to non promoters at Rs 32 per share (Rs 10 face value + Rs 22 premium). (Share warrant issue)
I have started investing. Do let me know if you think I have got it wrong somewhere.
Till then happy investing.
Don't you think with increased equity though warrants and GDR makes the P/E rating equivalent to the peers currently? Moreover they are planning for increase in equity to 78 crores. And in the CNBC interview, the official told they are looking for 200 crore equity and 300 crore debt. That would be scary dilution.
ReplyDeleteOne more question I've in mind is, how such a sudden spurt in volumes and profit in a year without capacity expansion or external economic changes like price increase etc.,. My guess is they are showing the trading activity volumes and not the operating ones. I might be incorrect here.
Look at previous warrants issued to non-promoters back in December 2008 for Rs. 10.2! Yes Rs. 0.2 as premium. And when checking the share holding pattern for next quarters, one can see slow offloading of this section ( > 1 lac ppl) to other section ( < 1 lac ppl). This happened when the price range is Rs. 20 - 30
Other concern is promoters are not increasing the holding through warrants! That's not encouraging for an non-insider investors like us.
At least technicals shows support @ 12 and reversal (double-bottom) may happen from here. But fundamentals need to be clear cut. It's very high risk investment.
What do you think?
b/w please share your email id. I am not able to find on your site. Thanks in advance.
This company is like like falling knife at the moment.
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