KIC Metalics- Rs.77.50

KIC Metaliks Ltd, promoted in 1986 by Mr Ravi Kajaria, was formerly known as Kajaria Iron Castings Ltd. The company manufactures of Pig iron, castings and slag cement. Due to the boom in steel, auto & construction sectors, its product is witnessing good demand and higher price realisation. It manufactures pig iron of both steel and foundry grade and its castings have a good international market and are mainly exported to various European countries, US and Australia. About 15-20 per cent of the pig iron produced is used captively for making its own castings and the rest is supplied to other foundries and steel companies.

The company’s manufacturing plant is located at Durgapur in West Bengal and currently produces 1,20,000 TPA of pig iron through technology obtained from Korf of Brazil. To get the maximum benefit out of a growing economy, the company is going in for forward integration and is in the process of setting up steel billet manufacturing plant with a capacity of 1,50,000 TPA which is expected to be operational by Sept. 2005. This plant will consume 75,000 tonnes of captive pig iron production. Hence the company is expanding the pig iron production capacity from to 1,50,000 TPA. To feed all its plants it is setting up a captive power plant of 4MW by using the waste gas generated from the blast furnace, which will reduce its power cost substantially. Due to the shortage and rising prices of metallurgical coke, KIC is putting up coke oven battery plant to produce 2,00,000 TPA of metallurgical coke which will meet 100 per cent of its coke requirement. Nearly 30 per cent of the capacity is in place and this coke plant is expected to commence production shortly. In short, the company has an aggressive Rs.100 cr. expansion plan to become an integrated steel manufacturer.

Recently the company came out with splendid Dec.’04 numbers. Its net sales jumped 170 per cent to Rs.68.20 cr. and NP increased by 150 per cent to Rs.2.50 cr. posting an quarterly EPS of Rs.6.70. In future, its profit margin is expected to improve due to cheaper raw material on account of backward integration. Considering the company’s growth plan and the rising demand for steel in the domestic as well as international markets. KIC Metalics could close FY05 with a topline of Rs.180 cr. and Net Profit of around Rs.7 cr. On its current small equity of Rs.3.70 cr. EPS works out Rs.19 and CEPS of Rs.28. Thus its trading at a low PE of 4 with a potential to appreciate by 50 per cent in next 6 months. Its FY05 and FY06 will be much better due to the impact of expansion. But at the same time the management may dilute its equity to fund the Rs.100 cr. expansion.