Sunflag Iron & Steel – CMP 31

Dear Friends,

Steel Sector has been witnessing a lot of price hardening due to both input price rise and demand. Stocks of this sector are finding interest.

One company which has good fundamentals and looks interesting is – Sunflag Iron & Steel. Sunflag is part of the Bhardwaj group having presence across 6 Countries in 3 Continents. The company manufactures high quality alloy steel which finds usage in Automobile Industry and Infrastructure sector.

The company has grown steadily over the years and should be able to post a turnover of close to 1300 Cr this year- FY10. Over the last few years, company has tried to go for backward integrations – for eg: expanding of captive power plants, acquiring coal blocks etc.

Attractive Valuations:

1. Stock is available at 7 times expected FY10 earnings.

2. Stock is trading at just 3 – 3.5 times FY10(E) EBITA margins.

3. If one analyses last few quarters, it seems the effect of backward integrations are fructifying and if the company can continue the same, the company may be on its way for yearly net profits of more than 100 Cr.

Another positive is – increasing shareholding of promoters (from 42.39% to 49.03% within one year).

Financial snapshot:

Interview of ER Shekhar, Director. | Company Website

10 thoughts on “Sunflag Iron & Steel – CMP 31”

  1. Ayush,
    any update on the company? The stock seems to have been stuck at same levels for long time.
    The worry part is the equity. Its too big. so eps gets diluted.

    Steel sector is witnessing a downtrend. so what would be the future of this company?

  2. Rishant,

    The fundamentals of this co have only gone better since I wrote the above post. Stock being at the same price is providing more opportunity and value. As WB says – “Price is what you pay and value is what you get”

    Yes, If the steel sector goes through severe downtrend then it will be also affected to some extend…but there is a lot of safety at this price.

    Couldn’t understand – the EPS gets diluted?

  3. Thanks Ayuh,
    I meantp EPS will not be rising much as the equity is very big and with prices softening the eps won’t rise and remain at same levels or may be less.

    How much of price appreciation you expect over a period of 1 year?

    Do they have backward integration like big players? That should help other PAT will take a hit.

  4. Hi Rishant,

    Predicting nos of commodity cos is never an easy task so lets concentrate on the past nos of the company. If one looks at the last few qtrs of the company, the co has been posting 25 Cr+ of Net profits and had even posted 30 Cr NP in March qtr.

    So like we had mentioned in our excel sheet that even if the co posts a NP of 75 Cr, the EPS will be 4.62. So I think there is a lot of safety at this price.

    I think the co will very well post 100 Cr+ profit this year…if so, the stock seems cheap.

    Another important thing is that the co is investing in coal linkages and becoming backward integrated like bigger players. Do read their last 2-3 yrs of annual report to get confidence.

    Regards,

  5. thanks Ayush,
    Very nice work and reply. gives me a confidence boost. I liked it. Pls continue to add more info and anything else you would recommend at this time as most of the stocks are quoting at full valuations.

    I am invested in Sunflag and would would like to have a look at something else too to invest.

    Thanks for detailed reply.

    1. Ayush,
      I saw Gujarat Reclaim Rubber, Balkrishna. but both are at high levels not sure if can be added at these levels? I mean I don’ t think we have a margin of safety, in that case what price we can get in?

      1. As markets and mid caps are doing well, both the stocks have been getting attention.

        It tough to time things but If one really liked the stock idea he can start sipping into it at current levels and accumulate on sharp declines, if any.

        Regards,

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