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Company Description:
Incorporated in 1989, SIL manufactures pig iron through the mini blast furnace route SIL operates in the iron and steel industry, which is considered as core sector. Earlier, it had replaced Tata-Korf technology with China-Shougang technology for pig iron making. It uses the Anshan technology sourced from P.R. China for metallurgical coke making. SIL’s pig iron manufacturing capacity is 2.10 lakh tpa and metallurgical coke has gone up to 4.5 lakh tpa from 3 lakh tpa. It commenced its 30MW co-generation of power at its site in the Bellary district of Karnataka from July 2008.
Investment Rationale:
Production from the mini blast furnace is of a high quality and can be assured to contain a minimum iron content of 93.5% and 4% carbon content. With the production of metallurgical coke, SIL is integrated backward for the key input material. Metallurgical coke is the key input material for iron making. The surplus metallurgical coke production from this facility is being sold in the nearby market.
In respect of power, SIL had already signed PPA at `3.25 per unit.
During FY08, SIL had issued 15.4% stake (49 lakh shares) to Stemcor Holdings, a
strategic investor at a price of `60 per share. Stemcor is a $6 billion leading consultancy firm, which provides marketing, finance and logistic services to steel industry. SIL also converted 6.25 lakh shares and 15.70 lakh warrants issued to promoters at `60 per share. The funds raised were utilised to meet the aforesaid coke capacity expansion and setting up of 10 MW power plant.
SIL has completed expansion of the coke making facility by 1, 50, 000 tpa on 23 December 2010 and augmentation of additional co-generation power of 10 MW and works to de-bottleneck idle capacity in the turbine generator capacity whereby additional power of 10 MW can be generated through thermal route is under progress. This will augment the power capacity to 50 MW going forward. SIL is also looking up for modernisation of blast furnace to reduce the production costs.
Metallurgical coke and power generation constitute major 72% of the segment revenue with the pig iron 28%. The augmentation of further capacity in the coke and power segment will enhance revenue and profitability further as demand and the margins are high in this segment.
Pig iron is the basic raw material for most of the engineering products, foundry industry and construction industry. With the significant growth in the main user industries like automobiles, construction, foundries, the demand for iron and steel has increased significantly. The total production of pig iron in India has increased from 1.59 million tonnes in 1992 to the present level of 5.68 million tonnes in 2010.
On the domestic front, India is the fifth largest steel producer with a production of steel of 59.57 million tonnes (+4.2% YoY) in FY10. The steel consumption in FY10 rose by 7.6% YoY to 56.32 million tonnes as against 52.35 million tonnes in FY09. The steel production is likely to go up to 124 million tonnes by 2012 and cross 200 million tonnes by 2020. The proposed investments of Rs 1.5 lakh crore to create additional 22.4 mtpa of steel would increase the demand of pig iron going forward. SIL is in the process of allotting 42 lakh share warrant to the promoters at a price of `60, which will take the promoters` stake to 42.2% upon conversion into equity shares at a future date. It will also allot 8 lakh equity shares to Stemcor AG at a price of `60. With the augmentation of enhanced pig iron and coke capacity together with upcoming cogeneration of power at the Greenfield site, SIL is confident of taking fullest possible advantage of the current uptrend in the iron and steel industry. SIL is likely to post an EPS of `16.5 in FY11 and `22.1 in FY12. At the CMP of `49, the share is trading at a P/E of 3.0x on FY11E and 2.2x on FY12E. We recommend BUY with a target of `66 in the medium term.
The stock of Satvahana Ispat had established a long-term rising channel for itself. A move below the channel brought selling pressure in the stock. The stock is currently attempting to recover from this fall. It is expected to move towards the lower trend line of the channel which currently stands at `53. It is likely to face resistance at this level. If the stock moves above the lower trend line of the channel then additional buying interest can be seen in it. However, the true test for the current pullback will be to move above the dashed falling trend line which currently stands at `55.5. A breach of this trend line will add fuel to the pullback and open the way for `65 on the upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Company Description:
Incorporated in 1989, SIL manufactures pig iron through the mini blast furnace route SIL operates in the iron and steel industry, which is considered as core sector. Earlier, it had replaced Tata-Korf technology with China-Shougang technology for pig iron making. It uses the Anshan technology sourced from P.R. China for metallurgical coke making. SIL’s pig iron manufacturing capacity is 2.10 lakh tpa and metallurgical coke has gone up to 4.5 lakh tpa from 3 lakh tpa. It commenced its 30MW co-generation of power at its site in the Bellary district of Karnataka from July 2008.
Investment Rationale:
Production from the mini blast furnace is of a high quality and can be assured to contain a minimum iron content of 93.5% and 4% carbon content. With the production of metallurgical coke, SIL is integrated backward for the key input material. Metallurgical coke is the key input material for iron making. The surplus metallurgical coke production from this facility is being sold in the nearby market.
In respect of power, SIL had already signed PPA at `3.25 per unit.
During FY08, SIL had issued 15.4% stake (49 lakh shares) to Stemcor Holdings, a
strategic investor at a price of `60 per share. Stemcor is a $6 billion leading consultancy firm, which provides marketing, finance and logistic services to steel industry. SIL also converted 6.25 lakh shares and 15.70 lakh warrants issued to promoters at `60 per share. The funds raised were utilised to meet the aforesaid coke capacity expansion and setting up of 10 MW power plant.
SIL has completed expansion of the coke making facility by 1, 50, 000 tpa on 23 December 2010 and augmentation of additional co-generation power of 10 MW and works to de-bottleneck idle capacity in the turbine generator capacity whereby additional power of 10 MW can be generated through thermal route is under progress. This will augment the power capacity to 50 MW going forward. SIL is also looking up for modernisation of blast furnace to reduce the production costs.
Metallurgical coke and power generation constitute major 72% of the segment revenue with the pig iron 28%. The augmentation of further capacity in the coke and power segment will enhance revenue and profitability further as demand and the margins are high in this segment.
Pig iron is the basic raw material for most of the engineering products, foundry industry and construction industry. With the significant growth in the main user industries like automobiles, construction, foundries, the demand for iron and steel has increased significantly. The total production of pig iron in India has increased from 1.59 million tonnes in 1992 to the present level of 5.68 million tonnes in 2010.
On the domestic front, India is the fifth largest steel producer with a production of steel of 59.57 million tonnes (+4.2% YoY) in FY10. The steel consumption in FY10 rose by 7.6% YoY to 56.32 million tonnes as against 52.35 million tonnes in FY09. The steel production is likely to go up to 124 million tonnes by 2012 and cross 200 million tonnes by 2020. The proposed investments of Rs 1.5 lakh crore to create additional 22.4 mtpa of steel would increase the demand of pig iron going forward. SIL is in the process of allotting 42 lakh share warrant to the promoters at a price of `60, which will take the promoters` stake to 42.2% upon conversion into equity shares at a future date. It will also allot 8 lakh equity shares to Stemcor AG at a price of `60. With the augmentation of enhanced pig iron and coke capacity together with upcoming cogeneration of power at the Greenfield site, SIL is confident of taking fullest possible advantage of the current uptrend in the iron and steel industry. SIL is likely to post an EPS of `16.5 in FY11 and `22.1 in FY12. At the CMP of `49, the share is trading at a P/E of 3.0x on FY11E and 2.2x on FY12E. We recommend BUY with a target of `66 in the medium term.
The stock of Satvahana Ispat had established a long-term rising channel for itself. A move below the channel brought selling pressure in the stock. The stock is currently attempting to recover from this fall. It is expected to move towards the lower trend line of the channel which currently stands at `53. It is likely to face resistance at this level. If the stock moves above the lower trend line of the channel then additional buying interest can be seen in it. However, the true test for the current pullback will be to move above the dashed falling trend line which currently stands at `55.5. A breach of this trend line will add fuel to the pullback and open the way for `65 on the upside.
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