Shah Alloys - Rs.88.00

Incorporated in 1990, Shah Alloys was originally started to manufacture alloy steel castings, carbon and manganese steel castings, ingots and billets. Later, Mr. Rajendra Shah, the promoter, diversified into stainless steel production in 1994 and his systematic expansion and time-bound execution made Shah Alloys the second largest stainless steel manufacturer in the country next to Jindal Stainless Steel. Today, its steel plant has an Induction Furnace, Ladle Refining Furnace and Rolling Mill and manufactures Stainless steel products including hot rolled plates, sheets, coils, slabs, rounds, flats, bars, billets, beams, bright bars, angles and wire rods.

The present installed capacity of the company is 2,60,000 TPA. It is a major slab supplier to the SAIL a unit at Salem. Approximately 50 per cent of the company's turnover comes from exports, which is mainly to China, Italy and Germany. The restoration of DEPB benefits and the government’s decision to continue with it, is a positive for the company. Since 1999, the company has been growing at a compound annual growth rate CAGR of 25 per cent and the management is confident to maintain the double-digit growth in future.
The company is now working towards becoming an integrated stainless steel producer for which it has ambitious plans of setting up a backward integration project at Gandhidham for producing sponge iron, ferro alloys and power through its subsidiary. The first phase of the Rs.205 cr. expansion is expected to start commercial production this fiscal with capacity of 1,80,000 TPA of Sponge Iron, 30,000 TPA of Ferro Alloys and 40 MW captive power plant (25 MW lignite based & 15 MW gas based). Apart from meeting its own raw material demand for sponge iron and ferro-alloys at a cheaper rate, this plant will substantially cuts its power cost to Rs. 1.50/Kwh from the current cost of around Rs 3.50/Kwh.

Along with this backward integration, its forward integration project of Rs.35 cr. is also under progress to manufacture high value added cold rolled products like - CR stainless sheets, coil etc. This 10,000 TPA plant will convert special steel HR coil manufactured in-house into CR SS sheets/coils to broad base its marketing thrust. Further, the company intends to develop various industrial grade products also. This plant is estimated to become operational from Dec 2004.

Fundamentally the company is strong with Sales increasing by 37 per cent to Rs.946 cr. and NP jumping 71 per cent to Rs.33 cr. in FY04. On a tiny capital of Rs.8.9 cr., the company has huge reserves of Rs.103 cr. leading to a book value of Rs.125. The Q1FY05 numbers were quite flat with Sales of 224 cr. and NP of Rs.7 cr. due to low exports on account of withdrawal of DEPB benefits by the government. With increasing global demand, robust SS prices and the company's thrust on export with backward integration, it is estimated that the company will achieve a NP of Rs.38 cr. on a turnover of Rs.1100 cr. for FY05. This works out to an impressive EPS of Rs.43. At current market price the share is trading at a PE of just 2. Investors can buy with hopes of 50 per cent appreciation in 12 months time.