Navabharat Ferro Alloys - Rs.334.00

Navabharat Ferro Alloys Ltd (NFAL) commenced business in 1975 with the manufacture of ferro silicon in a single furnace at Paloncha in Khammam district of Andhra Pradesh. Today, it is one of the largest fully integrated manufacturers of ferro alloys with captive power plants. Its clientele includes reputed biggies like TISCO, SAIL, Essar Steel, Jindal Vijaynagar etc. in the domestic market and POSCO, NUCOR, NIPPON, SUMITOMO etc. in the international markets. It has diversified into other product lines like the manufacture of sugar and its by-products and the generation of power. Ferro Alloys contribute to 60 per cent of its turnover whereas 20 per cent is from sugar and the balance 20 per cent comes from its power division. Due to the huge demand for steel worldwide, its products are in great demand with better price realisation for chromium & manganese based alloys. Sugar prices are already spiralling in fear of a demand - supply gap boosting its bottomline.

NFAL’s manufacturing is spread across 2 states of South India. Its Paloncha plant at Andhra Pradesh has the capacity to manufacture 75,000 MTA of ferro alloys with a captive power plant of 50 MW whereas its second plant is in Dhenkanal in Orissa with 75,000 MTA capacity with a 30 MW thermal power plant. The company has a 3000 TCD sugar plant with a 6 million litres per annum distillery and co-generation power plant of 5 MW at Samalkot in Andhra Pradesh. To cash in on the current boom, the company has an aggressive expansion plan to set up new smelter of 50,000 TPA capacity in AP and is de-bottlenecking its Orissa plant adding another 25,000 TPA thereby taking its total smelting capacity to 2,25,000 TPA. It is also expanding its sugar crushing capacity to 4000 TCD and increase the co-generation power capacity from 5MW to 9 MW. It will also increase the capacity of its power plant in Orissa from 50 MW to 82 MW to cater to its own expansion.

Fundamentally and financially, the company is quite strong with an investor friendly management. For the six months ending 30 Sept. 2004, its sales increased 46 per cent to Rs293 cr. but its NP jumped 250 per cent to Rs 76 cr. Due to better price realization, its OPM doubled from 18 to 37 per cent during this period. For FY05, NBFAL is expected to declare a dividend of Rs12 –15, which gives a good yield at CMP. Though there was a recent fire in its Orissa plant, it can clock a turnover of Rs600 cr. with NP of Rs135 cr. resulting in an EPS of Rs102 on its small equity of Rs13.37 cr. considering its expansion plans and bright future prospects. Although private placement or preferential allotment of equity to raise funds for expansion may dilute its equity, the long term prospects of NBFAL are excellent and its share price can double in 18~24 months.