A week back we had mentioned about Facor Alloys as one of our Mahurat Picks. The stock was in action today and up by about 16% to Rs 7.73. As the stock is crossing the level of Rs 7 after about 6 months, the action may have just begun.
First of all, I’ll like to thank Rohit for bringing to notice the merits in this company at his blog. He had discussed the stock about 6-7 months back, since then the company has posted much better than expected numbers.
Facor Alloys is in the business of chrome alloys, which are used in the steel industry. The industry is highly cyclical and the fortunes are linked to the steel industry cycle. South Africa is worlds largest producer of Alloys (60% share), over the last few years, India’s alloy industry has gained importance and is growing rapidly due to acute power shortage in South Africa.
Over the last few years, the company has very well re-structured itself. The debt has been wiped off, preference capital paid off + the company now has excess cash on balance sheet of about 35 Cr + Investments of 15 Cr in unlisted group company. Hence excess cash + investments is almost 40% of Current M Cap of about 130 Cr and provides a lot of comfort.
We feel the stock is a valuepick at these levels of about 7-7.50 and a re-rating may happen in the stock. Several positives are:
- The chrome alloy cycle seems to have turned positive.
- Co has been growing steadily by generating cash from internal accruals. This year expected revenues are 400 Cr+
- Co has posted excellent Q2 numbers.
- Cash Equivalent on Balance Sheet is almost equal to 40% of Current M Cap
- The company has been paying a dividend of 15% for last 2 years (FV = 1). Hence giving a dividend of 2%+ at these prices.
- Stock is available at 1.2 times BV of 5.6
- Stock is trading at just 5 times TTM PE
- Being a highly cyclical business, the earnings are highly volatile.
- Its a commodity natured business.
49 thoughts on “Facor Alloys Ltd.”
In the recent blog by Rohit, he has raised few concerns about company investing about 300 cr in sister concerns. What’s your take on this development?
Will look into the same.
Any updates on these developments by Facor.
Also please update the performance sheet when you get time.
No particular updates on Facor.
We had noticed some corporate advertisement by the Facor group talking about huge upcoming investments. That will be a positive in long run.
The company has been increasing its revenues, yet it is posting a decreasing operating profit due to higher cost of raw materials, indicating that it does not possess a pricing power to pass on the rising prices to its consumers.Please update me if I am wrong.
I have already mentioned in the above write up that its a commodity play (Risks). Yet, the valuations are attractive.
I am holding ABC Bearings LTD at 155, what is the target for long term
For short term the upside may be capped as the company hasn’t delivered as per the expectations and one may switch to other ideas.
For long term horizon, stock holds value.
By long term, do you mean >1 year? Or more? Also, as I’m reading your posts (am loving it!), one question keeps coming to my mind – how does one figure out when to sell?
When one buys into the stock, usually the immediate visibility is for next 6months to 1 year and usually things start taking place in this period. Long term is more than 1 yr and if the story starts falling in place, its better to hold onto the stock.
Sell in parts on sharp rises and when the undervaluation gap starts decreasing.
Thanks, Ayush. As far as valuation goes, it is by comparing the P/E ratio, right? Is there a place where the avg. P/E ratios for industry/sectors is avl? Or can I simply compare it to market leaders in that sector to see the potential for P/E growth?
You may refer to the Capital Market magazine scorecard to see the industry PE.
In valuation of facor alloys you have estimated the operating income of 400cr. in year 2011
which is aprox. just double of past year and comp. have never posted the such robust growth in past. plz tell me on what basis you have predicted such growth.
Yes, the expected turnover for FY 2011 is based on the already declared 6 months performance of the company.
Facor has already posted 197 Cr total income in first six months of this financial year. And the Net Profit for first six months has been 19.23 Cr.
Majority of the above might be due to better alloy prices.
look at lanco industries looks a good bet 40%-50% expected
I am holding SEL Manufacturing at 70 since 1 year, what is position of SEL Manufacturing, i can hold it for long term, what pice can i expect in 3 to 5 years
We don’t track this company hence not much idea.
Re-consider the reasons for which you had bot into SEL Manufacturing. If the logics are still holding and significant appreciation is possible then hold on to your bet otherwise switch to better ideas.
Looking at the past charts and performance, things don’t seem to be going right and hence I would advice caution.
I have just started following your blog and i am very impressed by your depth of analysis and judgement. Congrats and keep up the good work.
I am following Infinite Computer Solutions from past 6 months. The management has time again reiterated their guidance of EPS of Rs.23 for the current fiscal year. The stock is currently trading at Rs. 170. Also historically company has grown 25-30% annually for the past 5 yrs. Just wanted your opinion on this company.Is this a good company to invest in?
Thanks for your appreciation.
We have been tracking Infinite Computers and hence won’t be able to give a view.
I didn’t got you sir. You have been tracking and you won’t be able to give a view or you are not tracking the counter?
Sorry for the typing mistake – We haven’t been tracking the company.
i have 6500@ org info have any idea
Several things have changed for many of the companies mentioned here. (Some havent given great results etc..) . With these changes and current price fall which stocks from among ur ideas do you are now in a good position. Please kindly give ur opinion on how best can value investors take advantage of this and any further fall.
We are tied up in some important work and hence haven’t been able to update the status sheet.
The fall is very much on the expected lines as valuations were rich. After todays fall prices have corrected well….one may start sipping into the choice of his stocks.
looks like the market is presenting us with interesting oppurtunities .
continuing with your “theme” of buying finance companies selling below net asset value , i believe u might find an interesting oppurtunity in tcfc finance its selling pretty much below book value , has a good dividend yield and even though i wasnt able to calculate the NAV, i suspect its selling pretty much below that .pls have a look.
in case u r interested in turnarounds and bankruptcies i believe himachal fibres and dhandapani finance(atleast after the cdr proceedings)
might merit a look
wud love to know ur views on the above
Ayush Ji is currently out of city on a small vacation. Once he returns, he would reply with his views.
Thanks and regards,
thanks for the heads up pratyush, really hope ayush ji comes back soon.
ur fully-faltoo blog is freaking awesum dude!!! keep it up
p.s u sure r the coolest indian ca student ever….r u sure u havent cum here by a spaceship or sumthing?………..lol
Hahahahahaaaa……thank you very much for the feedback 🙂 . And yes, I am pretty sure I haven’t come from other planet :P. ROFL.
Please provide me a summary on TCFC finance, if possible.
ayush u r simply gr8n i am following ur blog since july also like mc donald blog ur feeling regarding hbl power now pls dont say do not track………saudi plant gulf batteries hold imense potential also promoters r constantly increasing stake ur reply awaited….
Hi Dr.Sunil Ji, it is really nice that you like our blog.
Ayush Ji is currently on a small vacation (out of city). He would reply to you once he returns.
Thanks and regards,
Thanks for the appreciation.
Yes, HBL power has a good track record and the promoter buying is a good sign.
On the negative, the recent financial nos haven’t been good and hence the stock is showing signs of weakness. Another possible negative could be – Exide has started giving very high competition to the telecom battery players.
do you have any view of promoters?
I have an average opinion for them.
What about you?
Is it a value buying at current levels for Facor Alloys?
Yeah, value is there at these levels.
The Q3 numbers are out. What is your assessment of the results and outlook in the current environment? Should one continue to accumulate?
The nos are a bit soft. Though the turnover has increased, margins were under pressure.
But as it is a debt free company with cash on B/S, one may buy on declines.
Thanks for the reply.
Given the following for FY11 for Facor Alloys, what is your take?
I am currently holding 20k@6, will it rise?
Sales 395.37 crores
PAT 32.83 crores
The co has posted decent nos and it has value at these prices. You may continue to hold and buy more in case of sharp decline, if any.
I re-visited this post today after a long time. The stock has been depressed for a while. What would be the key things to monitor to see if the cycle has turned for this stock?
I think this is a highly volatile sector and hence we have stopped tracking this co as of now. One may look at Maithan Alloy in this area.
it looks like the cycle is again turning can we accumulate this once again at these levels of Rs.2
Could be but we prefer not to bet on cyclicals.
any update on Facor Alloys, Ayush? Any early signs of turnaround in the sector? What to look for the reversal in the fundamentals of the sector
Sorry, not tracking the stock now.