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Archives : Old artciles

Saturday, May 3, 2014

Jai balaji Industries ltd:-The high risk high return steel bet

Quote:Just recommended the counter to paid clients hardly 5 days back.Its been an instant hit with an appreciation of over 20%.Looks set for more.Readers its your time folks.


High risk Multibagger stock idea:-

Scripscan:Jai balaji Industries ltd
Traded in:Nse-Bse
CMP:14
Target:No targets(Targets are hard to assign in turnaround stories and makes no sense)
Duration:Play it for any term with your own targets.


Quote:Often you will find its not the profitable companies which turn out to be multibaggers but mostly its the turnaround cases that provide multi times return,provided they are caught early.

Business:The company is an integrated steel player with four manufacturing facilities having a capacity of over 1MTPA. It is engaged in manufacturing of sponge iron, pig iron, ferro alloys, billets/MS ingots, DI pipes and steel bars/rods (TMT bars),besides having backward integration for sinter and power.Apart from manufacturing activities, the company is also engaged in trading of steel products.

Note:Company which traded at 325 bucks even 3 odd years ago presently quotes at just 14 bucks,a price erosion of a pathetic 96%.

What went wrong:-
1)Its expansion plan of Purulia went to a backburner as GOVT changed in west bengal.
2)The raw material prices went up(iron ore,coking coal and non coking coal) while the product prices shifted sharply lower.
3)Demand dried up and interest rates kept going higher and higher.Even USD hit 20% to 60$ which ballooned Jai balaji's raw material import bill(it purchases low ash Met coke in bulk through merchant importers on high sea basis)
4)Coal scan and subsequent deallocation of coal blocks took the toll away of the steel companies.
5)Markets are afraid of pledge shares and this company has over 84% of its promoter holding pledged to lenders.
6)Company reported losses of over 200crs in the fiscal 2013-14.
7)Due to accumulated losses,the Networth kept eroding which presently makes the debt-equity ratio looks scary to say the least.
8)Company operating at 40% capacity with its ductile iron pipe operating at a mere 20-25% capacity.
9)Till last quarter its interest cover was less than half,which in simple words mean,your gross profit is much lower than your interest costs which is alarming and increases the chances of default(86crs interest vs 24crs gross profit)
10)The CFO resigned,a CFO resigning suddenly without notice is not a good sign as puts question mark on the company.

Now am analysing the problems and trying to find the positives out of it:-

1)Purulia plant(probably not on anymore) though was one of the reasons for brokerages to go gung-ho on the stock in actual is a blessing in disguise.Under the environment, it would have only surmounted its debts and increased the costs,as the cost of raw materials went up multi fold.Management can concentrate more on the installed capacity.

2)Raw material prices over the last few months have come down quite sharply.Coking coal is almost hitting 6 year lows.Iron ore and non coking prices too have seen some softening.This should help in its working capital needs.Margins would increase too.

3)Demand has increased a bit and also the company has been to able to squeeze better realization from its product prices.I don't foresee interest rates going much higher from the present levels.However say a 2 notch points reduction over the coming couple of years can help it in saving around 50crs of interest costs.

4)Coal scam chapter has probably ended for good now.Most of the coal blocks allotted to the parties got cancelled.However all the coal blocks of the company are intact.I ain't bothered about the remaining ones but my area of interest lies on its two coal blocks,i.e,Dumri and Rohne.They are awaiting final stage clearence from the govt and got till 31st of November to get the same done.On operation,both together will add over 350crs of EBITDA.I have no updates on dumri but there seems to be some good news on the Rohne coking coal mine front.JSW and Bhushan steel are partners of the company as far the Rohne mine is concerned.Jsw as per the recent news have got the nod from coal India to use its infrastructure for the mining.Since the mining will be done at the same place, its easy to assume the partners would pluck out the coal at the same point of time.It would be prudent to note that JSW Steel on last Jan 2013 gave the guidance of starting the rohne coal production after a period of 18-24 months(search google for Jsw conference call Jan 13).With 15 months done now,mining can start by the end of this year.Jai balaji will save 250crs of inputs from the rohne mine alone.

5)Even when the price collapsed from 325 to 7 bucks,not a single pledged shares got sold.As per the management,pledge shares would never get sold as per their agreement with the lenders.Now even after 96% erosion,if the pledge shares are intact,we ought to believe in the statement of the management.

6)Company expects a much better year of fy14-15.The worst is over as per their words.

7)Its definitely scary but the coming quarters will probably help it to service its debt more efficiently.

8)Company as per my recent words with the management has seen an uptick in capacity levels.Its operating at near 50% capacity now vs 40% even a quarter ago.Ductile iron pipes demand are expected to grow 15% CAGR till 2017.Company is hopeful of utilizing the most of its DI pipe capacity.At even 85% capacity(25% now),DI pipes would add up over 150crs of EBITDA.

9)I believe from this quarter or maybe from the next, company would actually be in a better position to service its debt.

10)That was actually a part of the reorganization of the management team.The CFO got demoted to the post of GM finance(If I can use the word demotion here in place of shifted).Sanjiv Jajodia is presently serving the CFO duties as well the wholetime director duties.He is regarded as a very efficient finance guy who has been with the company from scratch.It would be prudent to note that MR Jajodia was the CFO till 2010 and under his reign company clocked record profits.

Coverage aspect:Even 2-3 years ago as many as around 8 reputed research houses covered the stock at over 200 bucks putting huge targets(UBS even went on to assign a target of as high as 450 bucks and kept the company on their high conviction list).The company had hardly anything then(coal block clearance was 4 years away,no ductile plant,no coal washery plant,no coke ovens),it got most of the things in place now but those guys who covered the company may have forgotten it or sold it off as a super flop bet.Probably its the best time to get into the counter.

Creeping acquisition part:Promoters know the most of their company.They bought shares worth 12crs from market at around 180,further bought 6.5 lakhs shares at around 40 bucks from market in the earlier years(between 2011-2012).Again chipped in with a massive 50crs(50rs per share-1cr warrants)to hike up their stake at a premium to the market price when they could have taken the same at 36rs.Though CDR stuff but at a 40% premium to the guideline price speaks volume about the commitment and confidence of the promoters.

Conclusion:The company presently may be fighting for survival but it still got the distinction of probably being the only entity to set up an integrated million tonne capacity at just 1600crs vs today's benchmark of 3500-4000crs.At full capacity this company can deliver a turnover of over 4000crs.At 100rs Marketcap you are getting the 8th largest steel manufacturer in the country(2nd or 3rd largest coal based steel manufacturer).Its a classic high risk high reward play.NAV or the bankruptcy value of the company would be much higher at over 50 bucks(replacement cost of assets at 4000crs vs debt of 2500crs).Its been a high beta play,moved up and down over the years in a huge manner.Other companies from this sector like Tata metalliks came out with great turnaround numbers recently.Jai Balaji has always been within the striking distance of the hot metal cost of Tata Metaliks which is an industry benchmark.With everything looking up,Jai balaji should too deliver much better numbers.If you got some risk appetite with penchant of high returns,park on some fund in the counter.Again a play for any term- short,medium or long term.


People looking for midcap/smallcap positional call professional service may rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

58 comments:

Anonymous said...

hey whats your view on accelaya kale it company??

Anonymous said...

Dear sir,

Can we buy ion exchange,gppl,narmada gelatine,oriental carbon &chemicals share at cmp?

If not then what will intrinsic value for those share?
I am long term invester.

Regards,
Tumi

Anonymous said...

Sir give your expert opinion on these two stocks.
A. Ptc financial services ltd.
B.kailash auto finance.
Can both be multibagger?

Anonymous said...

Hi sir,

What is ur view on 8k mile software services?

Regards,
Ram

Anonymous said...

Hello arun .... Do you track kirloskar oil. Whether it will be a multibagger in years. What is the negative you look into if you are tracking.

Anonymous said...

wts ur view on philips carbon....can its a good long term bet

Anonymous said...

Arun,

I am holding Cera and I am in 80% profit. I am a long term investor and can hold it for long. However, the recent spike in Cera after good results is justified? or you suggest partial profit booking? Same way, what about Symphony? hold or partial profit booking?

Thanks for your time and trouble

Anonymous said...

Hi Arun,

What's your view on spic?

Thanks.

rahul said...

Did you check the results of TRF .. Is it turning out to be another turnaround bet

Arun Mukherjee said...

1)Kale has been a 15 bagger for me.Amazing company.Should continue to outperform.

2)Ya can buy them.

3)Dont follow kailash,but ptc india fin was given as a multibagger idea in this blog few weeks ago.Read the note.

4)Not following kirloskar oil any more.

5)Ya philips carbon is a good long term bet.

6)Never sell your winners.Play with stop profits.Both are my favorites and minted massive money over the years.

7)Dont follow spic.

8)Yup recently recommended trf to paid members.

Anonymous said...

What is your long term view for Paushak. The last quarter result was disappointing. Should one add more in this correction or wait for a while for better direction? I am invested in Paushak.

Anonymous said...

sir what happened in orient paper ,I am a long term investor should hold it or not ,is that t2t news bad for this company or not?

Anonymous said...

sir what happened in orient paper ,I am a long term investor should hold it or not ,is that t2t news bad for this company or not?

Anonymous said...

Hi Arunji,

your views on Gujarat borosil, Multibase india and Himalya international buy at CMP? pls advice.

rahul said...

Do you track hinduja ventures ?? Any update on the stock ?? Its doing nothing from 4-5 years .. In the range of 250-400.. Value of it holding is huge and cable IPO hasn't come out yet...

rahul said...

You just don't buy blindly into these stocks .. Do Ur own research .. Valuepick does recommends stock in which u should have patience ... Half of the stocks will perform n half will do nothing for years ..
Either u buy everything in small qty or buy in the one which u have conviction

Mahesh Pokar said...

Hello sir. What's your views on idfc ?

Anonymous said...

I am invested in bayer crop science at 1600

it has corrected to 1370
levels
can you update the outlook here
all agri stocks are correcting on news of bad monsoon ahead

Anonymous said...

Hello Arun,

What's your view on Excel Infoways?


Regards.

Arun Mukherjee said...

1)Paushak is a good bet with an exciting future but its been inconsistent which is its biggest problem.Once it starts to deliver steady results,scrip can be massively rerated.

2)Orient paper has nearly doubled in last few weeks.So consolidating.Trade to trade segment has got no influence on its fundamentals and viceversa.

3)Am studying guj borosil and multibase.Seems decent on the first glance.Both unique in their own ways.Dont like the management of himalya.

4)Hinduja venture again a stock with deep value.Someday will move and the rally will go miles.

5)Dont like idfc,ptc india finance a cooler bet.

6)Dont follow bayer crop or excel info.

Anonymous said...

What is ur view on ramky infra, c & c construction , madhucon project?

Anonymous said...

wts ur view on basant agro tech....can it be an multibeggar

Anonymous said...

what is your view on MPS Ltd(Macmillan publishing).i bought @230.00.i am a long term investor.

Anonymous said...

Hi Arun Sir,
How are you doing?

Can you please provide your long term view on Apar Industries, Mafatlal Industries, V2 Retail and Astec Life science?

Thanks in advance

Paresh Muley, Amaravati, Maharashtra

Anonymous said...

What is your view on sun tv, ing vysa, navneet education, shipping corporation

Arun Mukherjee said...

1)Till infra themes come back and interest rate softens down much,this stocks wont move much.

2)I dont like splitting stocks in the low price category.Else it would been a classy performer.

3)Very bullish on MPS.High dividend to protect downsides and high growth to make the stock move up.

4)Only bullish on apar from the lot.KNow a guy who has 5crs in apar only.

5)Positive on sun,ing vysa and navneet.Can switch from sci to mercator.

Anonymous said...

Hi Arun, What is your view on Educomp Solutions?

Regards.

Anonymous said...

Hi Arun, I bought Jai Balaji @195....when it was coming down again I bought @120 and after that I didn't buy....my avg price was 152...after seeing your blog I came to know that it's a very high risky stock.... shall I avg or do you want me to left as it is....pls suggest.

Regards,
Aarnav.

Anonymous said...

Hi Arun,

What's your take on Span Diagnostics? Ready for an upmove after revival? Also, what's your take on Ador Welding?

Thanks.

Anonymous said...

Hi Arun,

Please let me know few stocks which I can invest SIP route for long term 5-10 years

Anonymous said...

what is your view on JVL Agro?

Arun Mukherjee said...

1)Educomp is gone probably.At best a takeover candidate.

2)Ya can buy jai balaji.Lot of value but with risk.

3)I like the model of span.Investor frndly mngmt.Any turnaround would make it spike up.

4)For SIP can go through my blog and choose your picks.All great candidates.

5)Very positive on JVL agro.

Riyaz Mohammed said...

arunji, please like know your view on sinclair hotels & jubilant food works

Anonymous said...

Hi Arun... what is your view on JHS... is it a buy now...

Thanks,
Naveen

Anonymous said...

sir wts ur view on camson biotech...a bio seed company...I thinks it has a great value in it.....can it be an multibeggar in 2-3 yrs...please comment

Anonymous said...

Sirji,
Any inputs on Patel Airtemp?

Anonymous said...

Arun Sir,
Can I enter in RS Software counter @190? is this a safe bet... need your guidance...

Anonymous said...

Dear Arunji,

Is fluidomat worth buy at CMP Rs.99/-. Pls advice. the scrip fall from high of Rs.124/- to Rs.99/-

Anonymous said...

Hi Arun, what is your view on TTK Healthcare, specifically for long term?

Anonymous said...

Hi a run, the results of TV today were bit dissapointing, is the future bright for this company, thanks sahil

Arun Mukherjee said...

1)Positive on sinclair hotels.Been in the hotel and enjoyed to the core.Dont like pizzas and hence no jubilant.

2)Jhs is trying its best to survive but I feel it would get sold out at a good value.Probably they cant service debts and debt being secured to icici,seems inevitable.

3)Some management concerns in camson,hence wont look at it.

4)I track patel airtemp from very long.Excellent company but without consistency in numbers.Once it shows some consistency,scrip could be a multibagger.

5)RS is trading at attractive valuations.Should provide 30% in a year.

6)Very very positive on fluidomat.Ya can be bot.

7)TTk healthcare excellent bet for long term.

8)Am happy with tv today numbers.Got only disappointed coz of the dividend.Else its a gold mine.

Nani Bommasani said...

Good day Arun, I would like to know your view on Tide water oil? Seems lot of value. Can one pick up at the current price? Your valuable advise will be highly appreciated.

Anonymous said...

many people would have told you but still want to repeat this... "YOU ARE AWESOME"... you are too good..

Anonymous said...

Hi arun,can south Indian bank become a miltibagger, please give your suggestions, thanks rohit

Anonymous said...

Dear Arun..I would like to know your view on Fedders Lloyd..please.

Anonymous said...

Dear Arun..I would like to know your view on Fedders Lloyd..please.

Anonymous said...

Aurn Sir,
Can you please let me know whether Ruchira paper is good bet or not?

Rajesh

Anonymous said...

Sir I have bought Manali petro @9
Supreme petro @62 and west coast at an average of 52 .. M holding them from a long time .. There have ups n downs in all stocks but they aren't performing like other stocks ..
Should I hold them or sell them n invest in stocks which you recommend ??

Anonymous said...

Arun, do you think Tata Global and FMCG underperform in near term due to verdict and other rate sensitives flying. This one completely stagnant. When ou think FMCG will start performing. Heavily invested in TATA GLOBAL. Pls reply. Thanks in advance.

Arun Mukherjee said...

1)Ya very positive on Veedol aka Tide water.Would pick it in place of castrol anyday.A bit of higher dividend and stock will get rerated.

2)Am very positive on south indian bank.Good dividend yield helps too.A lot of stalwarts are in it for the long haul.

3)Fedders would only run much once it enterts in the consistency zone.

4)Ruchira is a good stock from the dull sector.Till the sector moves much,it will be a market performer.

5)You can switch from manali and superme of the world to the stocks mentioned in the blog.

6)FMCG already performed amazingly in the last 3 years.I feel they would sleep now.People only chase them when things are uncertain.Tata global am not sure as it got all the ingredients to quote much higher,yet it never performs extravagantly.

Anonymous said...

Arun Sir,

Kidnly guide for Saksoft, an IT company.
Thanks in advance
JD

gksjam said...

What about concurrent india infra?

gksjam said...

What about Jhs?

Anonymous said...

Hi Arun,

The news in Kolkata about Jai Balaji Industries is not positive at all.. Suppliers are not supplying to the company on credit and there is apparently 'zero creditworthiness' of the company in the market..
As such, how will their capciy utilization increase for any kind of turn around? They dont have their own iron ore mines either..
And the biggest challenege - despite CDR, banks are not releasing working capital limits to the company, how will production happen at all???

Anonymous said...

Hi Arun,

Do you have any comments on the Anonymous post on 5th June that says suppliers are not supplying on credit and banks are not releasing working capital?

--P

Arun Mukherjee said...

1)Well its not that bad actually.They are trying their best.Search jai balaji times jobs over last week in google,company again recruiting heavily which gives some positive vibes.But overall remains a coal asset story.

Andy said...

Any updates on Concurrent Infra ? Badly stuck in it for last 3 yrs or so. Feels that you dumped the stock so that retail investors like us get trapped. Really a bad call.

Kiranreddy Munnangi said...

Whats your comment on jai balaji results?

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