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Tuesday, April 7, 2009

Varun Industries Ltd:-Hold for long term gains

Scripscan:Varun Industries Ltd
cmp:20
Traded in:Nse-bse

Story:Varun Industries is an exporter of kitchenware and houseware items, its main markets being the Americas, Europe, the Far East, Australia, African and Middle East countries.Varun Industries has set up a unit for steel kitchenware and houseware in Vasai, near Mumbai, at a capital expenditure of Rs 55 crore. This unit has capacity of 30,000 tpa and will help reduce the company's dependence on suppliers of these products.The company also has diversified into wind power generation.It proposes to venture into iron ore mining, oil and gas drilling.Company's iron ore mining business is yet to get approval for lease. Varun Industries has entered into a contract with ONGC for oil & gas drilling. Both these businesses are at nascent stages.The company has also completed its backward integration programme at Jodhpur. It has set up a stainless steel re-rolling mill at a cost of Rs 29 crore.The company is highly vulnerable to exchange rate fluctuations. Varun Industries has a high leverage and low interest coverage which I believe could be a major concern for the company's future plans and fund raising abilities. I also note the execution risks related to entering the Indian market.New businesses like iron ore mining and oil & gas drilling,wherein the company has no experience.Valuation wise it looks decent thus investors having the counter should keep holding for long term gains.

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Posted by arun at 8:50 PM

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