Sunflag Iron & Steel - Rs13.00

Sunflag Iron & Steel Company Ltd. (SISCL) was incorporated on 12th September, 1984 as a Public Limited Company in Maharashtra for setting up a composite steel plant for the manufacture of Mild and Alloy Steel Rolled Products. SISCL belongs to the Sunflag Group having diversified interests from making artificial leather, synthetic fibres, spinning, weaving, manufacturing of sophisticated garments to agriculture and agro based industries. The Sunflag group was founded by Shri Satyadev Bhardwaj in Kenya in 1937 and has its operations spread over 6 countries spanning 3 continents. SISCL caters to the demands of various core sector industries like Automobiles, Railways, Defence, Agriculture, Engineering Industry etc.

SISCL has set-up sophisticated Special Steel manufacturing technologies in collaboration with Krupp Industrietechnik GmbH, Mannesmann Demag Huttentechnik, MDS Mannesmann Demag Sack GmbH and Hamburg Consulting and Steel Engineering GmbH of West Germany. It has set up a state-of-art integrated plant at Bhandara district, near Nagpur, in Maharashtra with capacity to produce 2,00,000 TPA of high quality special steel using iron ore and non coking coal as basic inputs. The product mix covers a wide range such as Carbon Special Steel, Alloy Steel, Free Cutting Steel, Ball Bearing Steel and Spring Steel. In backward integration, it has a Direct Reduction plant which can produce 1,50,000 TPA of sponge iron for captive consumption in the Steel Melting Shop. Additionally, the fluid gases help generate 15 MW of electricity. Due to the rising international demand for steel, SISCL is putting more thrust on exports to the Far East, Middle East and other Asian countries. Currently, its plant is operating at more than 120 per cent capacity, which is a big achievement in itself.

Due to the ongoing boom in the steel industry, SISCL posted excellent results for all the three quarters of FY05. Last week, it came out with its third quarter numbers ending 31Dec. 2004. It posted 171 per cent growth in Sales at Rs206 cr. and NP stood at above Rs10 cr. compared to Rs0.50 cr. in the last corresponding quarter. Notably, it registered an impressive OPM of 18 per cent for this quarter. With the steel prices rising continuously in international markets and expected to remain high, the company can clock a turnover of Rs820 cr. with NP of Rs38~40 cr. in FY05. This would work out an EPS of Rs2.5 on its current equity of Rs162.20 cr. Thus the stock is trading at 5 times FY05 expected earnings, which is reasonably cheap and has the potential to appreciate by 50 per cent in the next 12 months.