Monnet Ispat - Rs.137.00

Back in 1990, Monnet Ispat (MIL) was incorporated by Sandeep Jajodia to manufacture sponge iron with a plant capacity of 1,00,000 tonnes of sponge iron per annum at Village Kurd in the state of Madhya Pradesh. Since then, the company has grown by leaps and bound to become a significant player in the sponge iron industry heavy the second largest capacity backed by captive resources of coal and power. Sponge iron is a substitute for melted steel scrap through the secondary route using the induction electric arc furnace (EAF).

Monnet Ispat recently completed the expansion of its sponge iron capacity by 70,000 MTA to 3,00,000 MTA and its steel capacity by 2,50,000 to 3,00,000 MTA. It is also merging Monnet Power Ltd. (MPL) with itself, which will be very positive going forward as it issues 1 share of MIL for 10 shares of MPL. Monnet Power has also expanded its power generation capacity by 37MW based on coal and coal rejects to 45 MW and ferro alloys capacity to 36000 form 12000 MTA. With the increasing demand for sponge iron due to the huge expansion by various steel giants all over worldwide, MIL is implementing further sponge iron capacity expansion of 4,40,000 TPA, which will take its total capacity to 7,40,000 TPA. The project is estimated to be completed in 15 months at a cost of Rs. 230 cr., of which Rs 155 cr. will be funded through debts (Citicorp:43 cr., promoters:24 cr., internal accruals:13 cr.) and the remaining Rs 80 cr. will be by way of equity. It is planning to increase its coal production to 1.5 MTA from its captive mine at Raigad in Chhattisgarh which has coal reserve of 126 MT. Importantly, MIL is working on the acquisition of some iron ore mines in Chhattisgarh & Jharkhand, which is at a fairly advanced stage. With all these plans materialising, it will become a fully integrated player with its 'raw material to finished product' strategy materialising to weed out external margins and capture the entire product value-chain right from power, coal and iron ore to sponge iron to finished steel.

For Q1FY05, MIL posted 250 per cent jump in net profit at Rs 17.43 cr. while Sales increased 105 per cent to Rs.99.03 cr.. It recorded higher profit and turnover despite the fact that its 1,00,000 MTA capacity of sponge iron was not in production during the first quarter due to repairs and replacement of equipment. Considering its future prospects post merger, it is estimated that MIL will post a combined sales of Rs.630 cr. with NP of Rs.90 cr., which will result in an EPS of Rs.30 on its expanded equity of Rs. 30.50 cr. and diluted EPS of Rs.28 if the promoters apply for 20,00,000 shares. At Rs.137, the share is quoting at a P/E ratio of just 5 and could touch Rs.220 within 12 to15 months.