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Saturday, October 17, 2009

Vesuvius India Ltd:Future prospects and growth outlook

Scripscan:Vesuvius India Ltd

Story:Vesuvius India makes high-end refractory products, flow control systems and services, and competes with companies such as Tata Refractories, ACC, IFGL Refractories and OCL India. Its product range includes refractories for steel manufacturers using the continuous casting process.Since most steel manufacturers, including the older steel makers such as SAIL, have now switched to this technology, this segment is likely to offer stable growth in demand.At a time when the primary and secondary steel players are going in for massive capacity expansion exercises, refractories consumption is only expected to increase.Over the past few years, Vesuvius has been focussing on solutions selling. That has paid off, introducing an element of stability into its business model.The company's refractory solutions are now predominantly sold on the basis of per tonne of steel produced instead of on `per piece' basis.This shift has enabled Vesuvius work more closely with its clients, provide customer-specific solutions and enter into long-term contracts with them.This augurs well for the company, as the current uptrend in the production of steel, which is expected to continue, will have a positive impact on its earnings.The company's broad product portfolio has helped it cater to the requirements of non-steel sectors too. Although it derives majority of its revenues from the steel sector, the balance is spread across the cement, foundry, glass and petrochemicals.However, the cyclical nature of the steel industry is an inherent risk for the company.The sustainable business model, the strong fundamentals, the rich product range and the ability to leverage the future growth of the steel industry could deliver value to investors.INVESTMENT can be considered in the stock of Vesuvius India. At its current price of about Rs 180, the stock trades at a price-to-earnings multiple of single digit its expected forward earnings.

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