Scripscan:Facor Alloys Ltd
cmp:4
Code:532656
Story:Belonging to Saraf Group, Facor was created in 2005 upon de-merger from Ferro Alloys.Company is engaged in the production of Ferro Chrome with installed capacity of 73,000 TPA which is one of the main R/M in Stainless Steel Production. World demand for same is around 6.50 mn tons, major portion being made by South Africa. Ferro Chrome prices are determined on quarterly basis by South African Chrome Producers. World demand for Stainless Steel is expected to grow at 4% which means demand for Ferro Chrome will also remain robust. Before markets crashed, share price had gone upto Rs. 21.75 and since then, has reacted 80%.In 2005, scrip was listed at Rs. 25-27. However, share price came down heavily due to following:1) Performance of the company that time was not very good.2)At that time, promoters were holding more than 90% Equity. And, under CDR scheme, promoters had been allotted these shares at par (Re. 1/-). Hence, promoters started selling heavily to realize big gains which increased the floating stock.
Facor group has 2 plants for production of ferro chrome of which,one is now under facor alloy and other is under ferro alloy. when govt. had allotted chrome ore mines (before de-merger), there was a condition in the mining agreement that these mines will be used by both plants of ferro chrome.when,one factory of ferro chrome went to facor alloy, technically 50% of chrome ore mines also should have been transferred to facor alloy. however, such a move involved huge technical/legal issues which would have taken years to sort out. hence, an understanding was reached between ferro alloy and facor alloy that facor will get chrome ore at a significant discounted price and not at market price. thus, facor alloy gets approx. 30% discount vis a vis prevailing chrome ore prices. due to rise in chrome ore prices, ferro chrome prices have risen sharply. thus, facor alloy is sort of owning (indirectly) chrome ore mines without actually owning the same and hence, it will continue to report kind of bumper profits which mining companies achieve.
Big Triggers:Now, carry forward losses will stand wiped out.Facor is likely to acquire stake in some chrome ore mines abroad in near term. With this, company will have access to additional quantity of chrome ore. Hence,company may plan to expand its Ferro Chrome production capacity.Once, announcement about overseas mines acquisition is made, Facor will also be a Direct Mining Company and scrip will be re-rated.Thereafter, company will have big growth potential.
Valuations:Not only in metal/mining sector, Facor Alloys appears one of the cheapest scrips at BSE, considering future bright prospects and mining triggers.Share price has been lying low due to lack of full knowledge about company’s actual intrinsic strength amongst investing community and low profile of the promoters.Share price has bottomed out and may only go up in stable market conditions. If, overseas mining acquisition is finalized, fy10-11 can again have huge rise in profits.Altogether as a penny priced stock looks cool.
Regards,
ARUN
9804589299
I may be reached at-arunanalyst@rediffmail.com
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