MUSCO Ltd - Rs.103.50

Incoporated in 1962, Mahindra Ugine Steel Co. Ltd. (MUSCO) belonging to the Mahindra & Mahindra Group is one of the well-known manufacturers of alloy steel in the country. It has around 100 customers, mainly manufacturers of forgings & bearings and engineering firms. The company's product profile consists of alloys, tool and die steel, engineering alloys, plastic mould steel, ball bearing steel, aircraft quality steel, offshore oil field steel, ferritic/ austenitic/martensitic/duplex/precipitation hardening stainless steel, case carburising steel, boron steel and automotive valve steel. The company also has a stampings division to manufacture pressed sheet metal components and assemblies. It is the only steel company to have achieved ISO 9002 accreditation for all its operations. MUSCO has an impressive list of clients including BHEL, Siemens, NTPC, SKF Bearings, Cummins, Ingersoll Rand, Bharat Forge, M&M, Fairfield Inc. (USA), Comprador Inoxidable (USA), PT Perkasa (Indonesia), S.I.Studs (UAE), Precision Forgings (Saudi Arabia) and Indian Railways to name a few.

Its steel plant has a capacity of 1,10,000 TPA and a workforce of more than 800 employees is located at Khopoli on the Mumbai-Pune highway about 100 kms from Mumbai. The stampings division is at Kanhe, Tal. Maval, Dist. Pune, has a capacity of 18,000 MTA. Due to the uptrend in the user industry, MUSCO is witnessing strong demand for its products, and has chalked out Rs.100 cr. expansion plan to enhance its installed capacity to 2,40,000 TPA by 2008 in a phased manner. It has already spent Rs.30 cr. in FY05 and plans to take the capacity to 1,50,000 TPA by end of fiscal FY06. MUSCO is also concentrating to export directly, which will improve margins further and some European and American buyers have shown interest in sourcing alloy steel from the company.

Fundamentally as well as financially MUSCO has become much stronger with better cash flows and better operating efficiency. It even declared 30% dividend for FY05. For the full year ending 31st March 2005 it posted very impressive number. Its topline grew by almost 50% to Rs.522 cr. whereas bottomline shot up to Rs.48 cr. compared to Rs.6 cr. last year. Its OPM improved substantially to 16% from 7.5% last year. Which means it reported an EPS of Rs.15.50 on equity of Rs.30.93 cr. Considering the expansion and slightly better margins in FY06, MUSCO to report NP of Rs.70 cr. on total sales of Rs.675 cr. registering an EPS of Rs.23 on the current equity. Investors are strongly advised to buy this scrip for 50% return in 12 months.