We had mentioned about Sunflag Iron. Since then then the stock price has appreciated by just 10% while the fundamentals and the outlook seems to be getting stronger.
We had mentioned that the company has been acquiring coal blocks since last few years and getting backward integrated. The latest annual report gives a strong confirmation on the same:
Excerpt from the FY 2010 annual report:
“During the year under review, the total coal production at Belgaon Coal Block is 140,147 MT as against of 51,234.41 MT in the previous year, which is about 174% higher than the previous year.”
If one analyses the Fixed Asset schedule and the investment section, the company has been stepping up the investments for captive coal blocks after the success from the Belgaon coal mine. For eg: The co has invested 10 Cr+ in subsidiary – Khappa Coal Mine which is JV between Sunflag Iron (63.27%) & Dalmia Cement (36.73%).
Future expansions as per the annual report:
Compelling Valuations at CMP of 34:
- FY 2011 Expected turnover is 1650 Cr+, with expected NP of 110 Cr+
- Stock is trading at less than 5 PE on expected FY 2011 earnings
- Stock is trading at 1.25 times BV of 25.50
- Debt Equity ratio has improved to 0.80 : 1
Promoters have been regularly buying from open market and have increased their stake from about 40% in September 2008 to about 51% as of now.
14 thoughts on “Sunflag Iron – Update”
Very good analysis. Thanks for the update
Btw, is there a way to calculate the FCF numbers from the spreadsheets or is it possible to include the FCF values in the spreadsheets
Thanks. One will have to use the annual report to calculate the same.
Don’t steel companies and cyclical industries in general trade at low PE ratios. I am not a ragular follower of markets but I have seen good profit making steel companies trade at PE of 5-8 for years.
So what do you think is the upside here?
PS Sunflag is the first stock I ever bought and profited from.
As of now, If one compares Sunflag with industry players…the co is trading at a deep discount.
Yes, being a cyclical industry, the industry can trade at low PEs for quite some time. But my investment horizon for this co is long enuf.
Really good analysis. At the current price the company seems to be a really good buy.
But the company has about Rs.300 crore contingent liabilities, an increase of around Rs.240 crore in the last financial year. Is this due to the corporate guarantee provided to Khappa coal company? Considering that the net worth of the company is still only Rs.400 crore, isn’t this going to affect the valuation of the company? is it not a big risk ?
I looked at the notes to acs and think the contingent liability is about 200 Cr.
Majority of it is – 108.49 Cr towards Unexpired letter of credit and about 40 Cr is towards bill discounted.
I think both the above items are part of regular business and shouldn’t be a caus of major worry.
if you compare the financial year 2008-09 and 2009-10 ,topline and bottomline figures why the profitability has almost doubled with just a 15-20 % increase in sales
Please refer to the excel sheet and the original post on the co – the co is getting better margins due to backward integration (coal mines) and the interest cost has remained the same despite inc in turnover. Hence the better net profits.
do you track 3i infotech? the company made huge invesments in 2007 by increasing their debt. so the interest burden went up and it is making losses. but the stock looks slightly undervalued at the current price. Do you think it is a good investment in the long term?
Sorry, I don’t track the same.
the company website doesnt have any information for the financial year 2009-10, where can i get the information and annual report??
The annual report and other details are available on the BSE website : http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500404
Ayush , what is your view on Sunflag as company and sector ?
The whole sector is in trouble similarly Sunflag’s recent profitability has taken a hit. We had recommended exit sometime back.
The stock price hasn’t corrected much to take a re-look nor has profitability come back.