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Steelcast Ltd has had a spectacular rally and hits a high of 164rs today thereby providing a solid 40% return in less than 15 days.
Market outlook and stock tip:-Steelcast Ltd
Saturday, January 21, 2012
1st Target,2nd Target and 3rd Target :136,154 and 200rs
1st Target Return:15%(Duration:2-3 months)
2nd Target Return:30%(duration:5-6 months)
3rd Target Return:70%(duration:9-12 months)
Story: Established as a partnership firm in 1960, the company got converted into a private limited company in 1972. Thereafter, in 1994, it came out with its public issue with equity participation from Kurimoto Ltd. of Japan. The Japanese company continues to have a 2.5% stake in the company to date.5 points to prove it a great buy:-
1)Steelcast Limited is one of India’s largest steel castings manufacturing company in the earthmoving equipment sector. Strong demand from user industries in India and globally has put the company on a high growth trajectory. Steelcast is expected to post revenues of over Rs. 225 crore in 2011-12, with nearly 45% coming from exports, mainly to the USA and Germany.Company’s product range includes industrial castings in carbon steel & low alloy steel.Some of the company’s major clients are Caterpillar, Komatsu, Thyssen Krupp, JCB, Tatas, L&T, Essar & BEML.Steelcast did revenues of 138crs in last year fy11,so here's a company which under the tremendous tough environment has targeted a 60% revenue growth and is well on course to achieve it.Read on.
2)The company has recently formed a 50:50 joint venture company with USA's Michigan Steel, to tap the US casting market.The US railways demand for castings is huge. In the first year (2012-13) it expects sales of Rs 40 crore from Steelcast LLC, and revenues in excess of Rs 200 crore over the next five years from the JV.The current manufacturing capacity is around 24,000 tonnes and company plans to expand further to 36,000 tonnes by March 2014.The product development shall be done at the Bhavanagar facility with technical support of Michigan Steel, while the JV company shall be doing the marketing.The farm equipment segment is also interesting as it now forms 10 per cent of the steel castings business globally. According to estimates, the casting industry in India is projected to reach USD 19.2 billion and an additional USD three billion for exports by 2016, due to shift of steel casting services to emerging markets like India and China.Around 10 lakh tonnes of castings are produced in Indian annually, off which five lakh tonnes are steel castings.The said development should catapult steelcast straight to the top global league.
3)The company has incurred major capital expenditure in the Financial Year 2010-11 towards introduction of Automated No-Bake Fast Loop Moulding Line of producing steel castings which is world over acknowledged and recognized for the production of high quality steel castings.Adoption of No-Bake technology will also result in increasing the manufacturing capacity of the company thereby helping in increasing the sales volume of the company.Steelcast has a plan of increasing the sale of finish machined, ready to use and assembled castings from existing level to over 50% by the year 2015.For this purpose, various items and customers have been already identified.
4)Steelcast presently is getting ready to tap the huge multi-billion dollar US Railways demand for castings. As part of the last lap of getting certified by the US Railways, an inspection team is coming from the USA to inspect the company’s castings manufacturing facilities located at Bhavnagar in Gujarat.Once the approval is received in a couple of months,Steelcast will become only the second such company from India.The US Rail certification will give it a big advantage over other players while bidding for contracts from the Indian Railways in future, especially the huge multi-billion rupee opportunities that will emanate from the upcoming Delhi-Mumbai Freight Corridor.The Indian Railways have already extended Class-A Foundry Status to Steelcast and sample orders for manufacturing couplers have been received.Further, the Association for American Railways (AAR) approval is at an advanced stage.One of the North American companies has already placed an order with Steelcast to manufacture railway castings for US Railways. This company is very actively interacting with Steelcast for facilitating the AAR approval at the earliest possible.Steelcast is all to set to transform from a small player to a gigantic player in the coming years.
5)We are getting all these from a company which is worth only 46crs as on date.Its a pretty ethical company runned by a visionary pedigree.The company last year did 4.3crs of profit.This fiscal the same should cross 10crs comfortably.Equity cap is a mere 4crs which translate into earnings of 25 bucks.Dividing the CMP with the earnings we get a multiple of less than 5 times forward earnings.Even assigning a forward multiple of 8,the target price gets arrived at hefty 200 bucks.Short term targets should be achieved as couple of triggers should work.The coming 3rd quarter numbers and some expected order announcements.Balance sheet is bit leveraged with lot of debts but the expected cut in interest rates and cooling of input costs would boost the margins.Altogether a counter which is perfectly worth betting on.
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