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Sunday, January 30, 2011

Bihar Sponge Iron Ltd:-Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Bihar Sponge Iron Ltd

Story:Promoted by Modi family, Bihar Sponge Iron is engaged in manufacture of sponge iron with installed capacity of 2 lac tonnes. So far, its financial performance has been bad as company has buy iron ore, coal etc from outside at higher price and due to small capacity, has been making losses.After incurring loss of 7.75 crores in 2009-10, its loss in H1 current year have gone up sharply to 17.74 crores. As against installed capacity of 2 lac tonnes, company is able to produce and sell hardly 1.30-1.40 lac tonnes, thus operating at 70% capacity.Bihar Sponge has been allotted IRON ORE mines spread over area of more than 400 hectares.Bihar Sponge has also been allotted Coal Mines. For production of sponge iron,iron ore and coal are main cost constituents. Both mines of Bihar Sponge are likely to become operational in 2012. Once, BSIL uses iron ore and coal from captive mines, company can report big profits.Further, a group company of promoters is implementing 20MW cogeneration power plant. At present, steam generalted by BSIL in production of sponge iron is wasted. This power plant will buy steam from BSIL and thus BSIL will have additional source of revenue from 2012 onwards.It is an open fact that how difficult it is for new applicants to get license for iron ore and coal mining.There are industrialists who are willing to pay huge premia(which can be more than current market cap of BSIL) for getting such licenses. Reason is that captive iron mines and coal mines make sponge iron operations extremely profitable. Presently, sponge iron is selling @ 21000 per tonne whereas costing (by using captive iron ore and coal) is below Rs15000 per tonne.At present, share price of BSIL is ruling so low due to losses in sponge iron production. Once, both mines become operational, management plans to increase production capacity to 1 million tonnes per annum ( 5 fold increase). Orissa Sponge is making very heavy losses but still share price ruling at very high levels(Rs 325/) only because Orissa sponge also has license for iron ore mines. On the other hand, BSIL is available at almost throwaway price.BSIL is the cheapest mining-to-be scrip .Altogether a company with multibagger potential.

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