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Friday, April 10, 2009

Bhushan Steel Ltd:-A good bet in the steel sector

Scripscan:Bhushan Steel Ltd
Traded in:Nse-bse

Story:The company derives more than 70% of its revenue from cold rolled and galvanised steel products. Currently, it has a total capacity of 900,000 tonnes of cold rolled products and 465,000 tonnes of galvanised steel products. The bulk of its revenue comes from automobile and white goods sectors, which predominantly use flat products.The company has three plants strategically located in different parts of the country. The Dhenkanal plant in Orissa is close to the raw material supplier and produces sponge iron and billets, the primary steel products. The Khopoli plant in Maharashtra and Sahibabad plant in Uttar Pradesh are close to the two auto hubs, Pune and Gurgaon. These two plants primarily manufacture cold rolled and galvanised products used by auto.The Indian economy has raised the spending power of corporates and households. While the former are using their higher earnings to set up fresh capacities, the latter are utilising higher disposable incomes to acquire new cars or buy a house.Either way, this trend has boosted the consumption of steel in the country, particularly in sectors like infrastructure , white goods and automobiles. This means more business for Bhushan Steel, which manufactures flat steel products. With steel demand expected to keep growing at a fast clip, investors are advised to accumulate Bhushan Steel’s stock with a 2-3-year horizon.The returns from the company’s first phase of investment worth Rs 11,000 crore will start accruing from FY10 onwards.The eps for 2010 is expected to be around 265 for the company At the current market price of Rs 400 the forward P/E multiple for FY10 works out to 1.5x.Altogther a good buy.

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