IndsilElectrosmelts - Rs.49.25

Founded by Mr SN Varadarajan in 1990, Indsil Electrosmelts Ltd. (IEL) is a small southern company manufacturing ferro alloys. Ferro alloys are amalgamations of iron with other minerals like silicon, manganese and chrome and are used to impart specific end-use properties to steel. Earlier, the company used to produce High Carbon Silico Manganese (High C Si-Mn), a generic grade ferro alloy but later shifted to a special ferro alloy called Low Carbon Silico Manganese (Low C Si-Mn). This ferro alloy delivers value to the downstream industry in terms of much lower requirement of power in the production of SS200 grade of stainless steel. It is one of the three companies in the world that produces this ferro alloy.

Its plant at Palakkad in Kerala and has the capacity to produce 15,000 TPA of ferro alloys. As power constitutes the main cost in the manufacture of ferro alloys, the company has set up a 21MW hydroelectric power plant at Rajakkad in the Idukky district of Kerala. The hydel power makes immense commercial sense considering that Kerala is the recipient of the Rain God's bounty with both the South West (or summer) and North East (or winter) monsoon being active and above average in relation to the rest of the country. Moreover, the location of this power plant is such that it is be fed by a 49 million cubic ft. dam of the Kerala State Electricity Board (KSEB) even during the dry season. For future growth, the company has set up Indsil Energy and Electrochemicals Ltd to acquire a closed ferro alloy unit at Raipur in Chhatisgarh and execute an expansion to increase its smelter capacity. It is also setting up a coal-based power plant which will supply the excess power to Pallakad unit at substantially lower rates.

Thus thee future of IEL indeed looks promising. For the first quarter ending 30 Sept. 2004, its total revenue increased by 50 per cent to Rs19.20 cr. as it earned a NP of Rs3.30 cr. against a Net loss of Rs1.45 cr. last year. Taking into account the savings in power cost from its hydel power plant, it can report Net Sales of Rs75 cr. and NP of Rs11.50 cr. for FY05. This would result in an EPS of Rs12 on its equity of Rs9.45 cr. Investors are advised to accumulate this share at sharp declines for a price target of Rs70 in the next 12 months.