Modern Steel Ltd - Rs.90.00

Promoted by Amarjit Goyal, Modern Steel Ltd (MSL) was originally incorporated as a Private Limited Company in 1973 and was then converted into a public limited company in 1974. Today, it’s a well known manufacturer of special and alloy steels and caters to the needs of a wide spectrum of users that include Automobiles, Tractors, Engineering, Defence, Railways and allied industries. It produces a wide range of Steel Grades, Carbon Constructional Steel, Alloy Steels, Free Cuttings, Tools and Spring Steel. In addition it produces Billets, Rounds, RCS, Flats and Special Profiles. With its large range of products MSL caters to OE customers which include Ashok Leyland, Escorts, Eicher Motors, Punjab Tractors, HMT, MICO, Lucas-TVS, Sundaram Fastners and their ancillories.

MSL’s manufacturing facility is located at Punjab with an installed capacity of 1,00,000 TPA. The plant is equipped with 25 tonne Arc Furnace, with secondary refining and continuous casting facilities, modern rolling mills and a captive oxygen plant. To cash on the uptrend in the steel cycle, MSL has initiated a modernization & expansion plan with an estimated capital outlay of Rs.32 cr. in its Steel Melting Shop and Rolling Mills. It intends to enhance the steel melting shop capacity by 50,000 TPA and Rolling Mill capacity will be increased by 36000 TPA. The project is expected to be completed by March 2006. To fund this expansion, it will raise money through private placement of equity by preferential allotment. In line with the company's policy for continual improvement, MSL has achieved TS 16949 certification from DNV, Netherlands, last year. Besides due to improved performance, MSL came out of the preview of Sick Industrial Companies (Special Provisions) Act., 1985 in FY04 itself.

Due to better management, constant modernization and higher price realization, MSL improved its operating efficiency quarter by quarter. It reported an OPM of 11% for FY05 compared to 7% for FY04. For FY05, its turnover increased 37% to Rs.270 cr. and NP jumped 170% to Rs.16.50 cr. in spite of higher tax provision of around Rs.10 cr. and declared 20% dividend. EPS works out to Rs.34.50 for FY05 on its current equity of Rs.4.80 cr. Considering that the steel demand will remain robust in coming quarters, MSL may report an EPS of Rs.40 on current equity for FY06. This works out to Rs.24 if we consider the diluted equity as Rs.8 cr. Investors are recommended to buy this scrip with a price target of Rs.150 in 15~18 months.eners and their ancillary units.