Orissa Sponge - Rs.55.50

Incorporated in April'79, Orissa Sponge Iron Ltd (OSIL) was promoted in the joint sector by the Industrial Promotion & Investment Corporation of Orissa and Torsteel Research Foundation and its associates. It manufactures sponge iron through the direct reduction route by using non-coking coal as a reducing agent. Sponge Iron is the basic raw material used for steel making and steel manufacturers of late are trying to replace iron ore with sponge iron to reduce their dependency on imported coking coal, which is very good for sponge iron manufacturers like OSIL. The company also has a project consultancy division which provides technical consultancy and project engineering services to sponge iron plants. Lloyds Metals & Engineers, Usha Martin Industries etc. have already adopted the OSIL technology whereas other leading steel producers like the Bokaro Steel Plant of SAIL has shown a keen interest to adopt it.

OSIL has a current installed capacity of 1,00,000 TPA of Sponge Iron and 1,00,000 TPA of Steel billets. It has installed a 10 MW power plant utilizing the waste heat from the sponge iron plant. It is upgrading technologies to allow 100 per cent sponge melting as well as permit the use of iron ore fines generated during mining for sponge iron making. The company intends to install an additional kiln with a capacity of 1,50,000 TPA of Sponge Iron and also to set up a Steel Billet Plant at Bamra in District Sambalpur in Orissa with an installed capacity of 3,00,000 TPA. The company is also setting up a 9 MW power plant using waste heat of the kiln, which will not only make it almost self sufficient in the power requirement of the Steel Billet Plant but also reduce its power cost. The Central Government has also approved the grant of iron ore mining lease to OSIL.

OSIL has reported impressive numbers for the six months ending Sept 2004 with Net Sales up by 30 per cent at Rs64 cr. while NP jumped 124 per cent to Rs5.60 cr. posting an half yearly EPS of around Rs5. Its OPM also improved 550 basis points to 26 per cent compared to last year. Taking into effect the expansion and higher price realization, it could clock a turnover of Rs150 cr. and NP of Rs13 cr. for FY05 This works out to an expected EPS of Rs11 on its current equity of Rs11.90 cr. and it may declare 20~25 per cent dividend, which makes it a good dividend yield at the current price. In the current market sentiment, this scrip can easily give 50 per cent return in 6 months and can double in a year’s time.