Raipur Alloys - Rs.80.00

Incorporated in 1973, Raipur Alloys and Steel Limited (RASL) is an integrated steel producer engaged in iron ore mining and producing sponge iron, mild steel ingots and rolled products. It had set up its first plant in 1975 with a 18,000 MTPA ingot making capacity and today operates in ISO 9001:2000 plant with a 2,10,000 MTPA sponge iron and 1,00,000 MTPA steel ingots manufacturing capacity. RASL is marketing TMT bars under its registered trademark 'Hytech' which has fetched an excellent response from large corporates due to its quality. It has also obtained a patent for its special design steel bar, which is valid for an initial period of 10 years. The company is looking forward to enter the international market and export directly in a big way. Last year, the company acquired an iron ore mine of approx 81 hectares in Rajnandgaon district in Chattisgarh, where mining of iron ore has already begun. Further development is going on to increase production, which will meet its entire captive requirement by FY07. RASL has also acquired coal mining rights over a 360 hectares stretch with estimated reserves of 100 million tonnes of coal in Chhattisgarh.

Given the buoyant demand, technological advancements, abundant availability of quality iron ore, skilled manpower and the required grade of coal have thrown open vast opportunities for the Indian steel sector and RASL is taking steps to take full advantage of the emerging opportunities. It is adding one more sponge iron kiln to increase the capacity from 2,10,000 to 3,60,000 TPA and expanding its steel making capacity from 1,00,000 to 2,40,000 TPA, which is expected to be completed by March 2006. To further strengthen and consolidate its position, the company also proposes to merge M/s. Chhattisgarh Electricity Company Ltd. (CECL) and Raipur Gases Pvt. Ltd. (RGPL) with itself. CECL, a group company, is a leading manufacturer and exporter of ferro-manganese and silico-manganese besides power generation. RGPL was supplying oxygen to the EAF steel plant of the company, as an auxiliary unit.

Considering its expansion plan and backward integration by acquiring the iron ore and coal mines, the long term prospects appear very promising and healthy. Its profit margin is all set to rise in coming years and this is another Monnet Ispat in the making. Inspite of a huge expansion plan, the company declared hefty dividend of Rs.3 and the promoters hold around 74% stake, which means that the management is quite investor friendly and believes in companies growth. For FY06, it may declare Rs.5 dividend, which works out to a dividend yield of more than 6%. Although the first quarters numbers were not that encouraging, for FY06 we expect it to clock a turnover of Rs.325 cr. and NP of Rs.26 cr. i.e. an EPS of Rs.20 on its current equity of Rs.13 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.160 or 100% appreciation in 12 months. Long term investors will get much better returns if held for 24~30 months.