Raipur Alloys has now emerged as an integrated steel plant by enhancing capacities not only for sponge iron but also undertook backward and forward integration into mining and final steel products like with Tisco & Sail.
Huge expansion:
1. Sponge Iron: Initially the company was manufacturing sponge iron having installed capacity of 60,000 MT which was been enhanced to 2,10,000 MTA last year and is now planning to add one more sponge iron kiln to increase the capacity further to 360,000 TPA in the current year itself. This means that the capacity expansion for sponge iron alone has gone up by five times from a mere 60,000 to 3,60000 TPA within two years, which is indeed a landmark for any company in such a short span of time.
2. Steel: The company has also embarked upon the expansion of steel making capacity from 40,000 to 2,40,000 TPA which is expected to be completed by end of this financial year itself as orders for major equipments have already been placed. This is also a five-fold expansion.
3. Coal Mines: The company has also taken the mines on lease over an area of 336 hectares for mining of coal for captive use. The work on development will start soon once the formality of acquisition is completed shortly.
4. Iron ore mines: The iron ore mines, which were acquired last year have produced 15,548 MTA of ore initially in FY05 and is now geared to increase to produce multifold iron ore during the current year. Its captive consumption will meet its entire requirement for steel production.
Thus the company has successfully implemented its multifold expansion cum diversification plans to be fully operative by the end of this year strengthening its product profile from iron ore to sponge iron to finished steel products.
Production
2003-04
2004-05
2005-06
Target
Steel Ingots (MT)
26994
20,274
40,000
Sponge Iron (MT)
64303
91767
210000
Besides, the company has also proposes to merge two entities with the company viz. Chhattisgarh Electricity Company and Raipur Gases Pvt. Ltd. The merger of these two entities will provide synergies and size for rapid growth while meeting its power requirement, Ferro alloys, Gases etc.
The company has completed the forward integration to produce value added products, which will help to boost its bottomline manifold from the current year onwards.
Performance Review: (Rs. in lakh)
Particulars
2003-04
2004-05
2005-06
Target
Net sales including other income
12490
23442
50,000
Operating Profit
1624
3625
7500
Interest
34
247
500
Depreciation
345
427
1000
Profit after dep. & Int
1245
2951
6000
Taxation Current & Defferred
113
1164
2000
PAT before extraordinary items
1132
1787
4000
From the above highlights it may be observed that its operating profit went up by 125% and gross profit has also gone up by 158% after providing manifold increase in interest from merely Rs.34 lakh to 247 lakh, Depreciation from Rs.345 lakh to Rs.427 lakh, Net profit was however higher by 58% because of huge tax provision of nearly tenfold to Rs.1164 lakh as against Rs.113 lakh in the previous year.
The spurt in profit in the current year is estimated to be manifold as stated under the target column and will be mind boggling as production volumes will be several fold on account of the five fold expansion in existing product capacities and the diversifications as enumerated above. They will start giving results from the 3rd quarter onwards as half of the enhanced capacities will come into commercial production. Besides, the increased production capacities and availability of captive mines, coal will bring down the cost of production substantially and will also enhance the competitive strength of the company.
Project Finance: The entire project cost is reflected in the increase in secured loans availed from banks. Raising unsecured loans from promoters has already been tied up and the rest is expected to meet through internal accruals only. The rate of the secured loan is also quite cheap.
Future Outlook: Based on multiple increase in production capacities and captive mines of iron ore and coal, the company's future can be safely forecast to be highly encouraging. The company expects the demand for its products to remain good and the prices to remain stable with reasonable growth resulting in a positive and robust outlook.
Dividend: The company has recommended a dividend of 30% for the year ended 31st March'05 which may be enhanced further to over 50% in line with the expected encouraging bottomline on account of increase in volumes, which is likely to more than double as shown in performance review under the 2005-06 targeted figures.
Exports: The company is also looking forward to enter the international market and a modest beginning has already been made with the export of 1700 MT of iron ore fines through an export house. The company is, therefore, exploring all possibilities for all its products such as iron ore, sponge iron, steel ingots and billets. The company has also been awarded ISO9001-2000 certification from ABS Evaluations Inc. The company is making TMT bars under its registered Trademark as 'HYTECH', which has fetched tremendous response from large corporates due to its better quality.
Market Price: The company's share had hit Rs.158.25 in March'05 while fluctuating between Rs.100 to Rs.125 most of the time thereafter. It has the potential to go up Rs.200 to Rs.250 in the short term and Rs.400 to Rs.500 in the long term after its fivefold capacities become fully operational. Its share price has been in a massive consolidation phase ever since it hit Rs.158 mark in March'05. No sooner the consolidation is over, the market price of its share is likely to spurt in line with Elecon Engineering & Usha Martin.
Conclusion: Based on the higher demand, it's fivefold enhanced production, backward & forward integration with captive mines, a well established brand with increased export sales, the future of Raipur Alloys is highly encouraging. One should keep this stock in his portfolio according to his capacity. Raipur Alloy's future is building up in line with Usha Martin and Elecon Engineering as these shares were also lying low earlier but shot up sharply ever since their growth prospects came into light. So will be the case with Raipur Alloys.It may also be noted that the promoters of Raipur Alloys have increased their equity stake in the company to over 74% and it may go up further as soon as the two entities referred above are merged with it. It is, therefore, the right time to pick up this share at the right price to reap rich harvest like Elecon Engineering, which is Rs.700 now as against Rs.125, a year ago and Usha Martin Rs.200 against Rs.60 a year ago
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