Tulsyan NEC Steel - A Steal :)

On Tulsyan NEC

This Company is listed on BSE as well as NSE. It got its listing permission from NSE a couple of months back. This is a company, which is in two lines of business: Steel and woven sacks. The company manufactures TMT bars, MS alloys and billets in the steel division. They also manufacture HTP and PP woven sacks. Tulsyan NEC is not ideally one of those steel companies which you would want it to be in terms of backward linkages. The company as of now doesn’t have any backward linkages. It buys steel scrap/sponge iron for manufacture of steel and it also buys power from the grid. It doesn’t have its own captive power source.


But if you look at the other positives of the company, this company is available at a market cap of just about Rs 33 crore. The company does sales revenue of about Rs 650-700 crore. This company has been a profit making company for the past 15 years. It has made profit not just at the operational level but also in the net level in the last 15 years. The company has got a track record of dividend for the last ten years which is uninterrupted – even during the worse phases of the steel cycle this company has paid dividend in the last 10 years.
The company made an operating profit of about Rs 46 crore last year and operating profit for the first nine-months is about Rs 31 crore. PAT for first nine months is about Rs 4.5 crore, which results in an annualized EPS of about Rs 12. At the current price of about Rs 65 this stock is trading at a PE multiple of about 5-6.
The other good thing happening here is that the company is now going in for backward linkages, about 2-3 months back this company has acquired a sponge iron plant called Chitrakoot Steel and Power Limited, which has got a 30,000 tonne per annum for sponge iron capacity, which they are increasing further to about 1 lakh tonne per annum. The company is also putting up a 35 megawatt power plant. They have already acquired about 75 acre of land. This will be operational in Q3 2011, which is FY12.
Considering all this, the company had been making good profits for the past 15 years without any backward linkages. Now the backward linkages are coming. The market cap of the company is just about Rs 33 crore – even assuming a 1% increase in net profit margins on a sales of Rs 700 crore results with an EPS increase of about Rs 14.
Of course, this is not an ideal steel company in terms of linkages but its available at a market cap just about Rs 33 crore on sales of Rs 700 crore. The downside from these levels looks extremely restricted but once the linkages are there, obviously, the profitability will go up. Also there is a potential for huge upscale increase in profits after the linkages are available.
So at the current price of Rs 60-65 I think it’s a stock to accumulate for the next maybe two years. Once the linkages are in place the profits can go up really sharply.

Rana Sugars - New Capacity

Looking at the good returns from the power segment, Amritsar-based Rana Sugars Ltd, a part of the Rana Group, is enhancing its co-generation power capacity from 20 Mw to 30 Mw, with an investment of Rs 40.8 crore.

 

The existing unit is an integrated sugar plant with a capacity to crush 5,000 tonne of sugarcane per day and facilities for the co-generation of 20 Mw, situated in Buttar Sevian village, Amritsar.

 

At present, out of its total installed co-generation power capacity of 20 Mw, the company is selling about 10 Mw of surplus power to the Punjab State Electricity Board (PSEB). The rest is used for its own consumption.

 

Therefore, the company is now enhancing its installed co-generation power capacity from 20 Mw to 30 Mw, out of which the company would be selling power capacity about 19.60 Mw of surplus power to PSEB.

 

Speaking to Business Standard, Rana Sugars Ltd General Manager (Finance) Manoj Gupta said, “The project would require a capital investment of Rs. 40.80 crore and would be funded through cash accrual and term loan from the banks and likely to be commissioned by October.”

 

Last year, the company set up a distillery unit with a capacity to produce 60 kilolitres per day, with an initial investment of around Rs 39 crore at Patti, Amritsar.

 

The company is utilising molasses, a by-product of its sugar and grain products, for the manufacture of rectified spirit, ethanol and potable alcohol.

 

The company imported machinery from China, in which 50 per cent of wash and impurities is evaporated and the remaining is burnt in boilers, without polluting the environment, making it a pollution free unit.

 

The setting up of the distillery enabled the company to fully integrate its operations. Its existing sugar plant at Amritsar produces 200 tonne of molasses per day.

 

Also, the company’s is setting up two sugar units at Moradabad and Shahbad, both in Uttar Pradesh, with a capital investment of Rs 418 crore. The proposed units will be integrated units each with a capacity to crush 5,000 tonne of sugarcane per day and facilities for co-generation of 20 Mw of power.

 

While the Shahbad unit has started the new plant at Moradabad (Uttar Pradesh) would be operational by October. Besides the sugar industry, the group has diversified into textiles, informatics and infrastructure.