Bhagyanagar Metals - Rs.25.00

Bhagyanagar Metals Ltd (BML), a part of the Surana Group of Hyderabad was incorporated in 1985, with the object of carrying on business in Ferrous and Non-ferrous metals. It commenced its business by acquiring a Copper Rod Unit (India Extrusion) in 1985. Since then, it has ventured into manufacture of a range of copper products such as – Copper Coils, Strips, Sheets, Flat pipes, conductors, apart from Jelly filled Cables, Polyethylene Compound and Auto annealing components like field coils which goes into auto ignition. In short, its 70% revenue comes from telecom products and rest 30% comes from its copper division. MTNL, BSNL, Lucas TVS, BHEL, Crompton Greaves and Sahney Paris are some of its major clients.

With the advent of technology from wireline to wireless, BML has diversified into the cellular field and offers CDMA products like handheld and Fixed Wireless Phones. It has entered into memorandum of understanding with LG Electronics to supply wireless handsets. Moreover BML has also diversified into real estate & infrastructure development like setting up of IT Parks, housing projects etc. Recently, it won the bid to acquire 3 acres of HMT Ltd land at Jalahalli in Bangalore close to the airport and NTC's 4.5-acre land of Jyothi Weaving Mills at Patipukur in Kolkata for Rs.10 cr. and Rs.13 cr. respectively. Apart from these 2 projects, BML intends to develop the groups own land of 12 acres located at Uppal in Hyderabad into a one million square feet infrastructure project for IT companies. To summarise, BML plans to invest around Rs.150 cr. for these projects which shows how aggressively the company is betting on real estate development.

More importantly, BML has proposed to restructure the company’s business in order to give adequate focus to the Telecom, Metals, Investment & Infrastructure business. It intends to demerge some of its present activities into two new companies. This demerger process will lead to a re-rating of the stock unlocking its actual valuation. Financially & fundamentally, the company is quite strong. For FY05, it net Sales increased by 65% to Rs.158 cr. whereas its NP jumped 186% to Rs.27 cr. (including OI of Rs.10 cr.) leading to an EPS of Rs.8.50 on its equity of Rs.6.30 cr. and FV of Rs.2 per share. It declared 25% dividend as well for FY05. BML has huge reserves of Rs.77 cr., which leads to BV of Rs.27. For FY06, it can report an Net Sales of Rs.190 cr. and NP of Rs.20 cr. i.e. EPS of Rs.5 on diluted equity of around Rs.8 cr. Investors are recommended to buy this scrip with a price target of Rs.40 i.e. 50% appreciation in 12 months.