Sunday, March 22, 2009

Stock Idea: VBC Ferro Alloys

VBC Ferro Alloys Ltd. (BSE Code : 513005) (CMP Rs. 192.00)
Reliance Power bagged Sasan Power Project which will be implemented by 2012 but came out with IPO at Rs.400/ although its project cost per MW is higher in peer group and only God knows when this co will pay dividend and/or declare profits. It is also known that Anil Ambani has now shown any project implementation Financial Performance capabilities so far. REL has only 1 power plant so far which, too, was implemented by erstwhile BSES.Competitors from South have implemented much bigger power plants with good performance during this period In such a scenario, VBC Ferro appears solid bet considering massive value of its investments in Power Sector. VBC ferro scrip had gone upto Rs 480/- last year and now, at CMP is an excellent buy and being recommended for investment because Konaseema has started getting gas supply for its power project from 10th March 2009. In official press release, Konaseema has stated that
100 MW power generation has already started and it should achieve peak capacity of 400 MW by end of next month. VBC Ferro is engaged in the production of Ferro Silicon and Silico Manganese. For Year Ended 31st March 2007, company had reported sales of Rs. 74 crs. and PAT of 3.72 crs. Its Equity is Rs. 419,49,875/- (approx. 41.95 lakh shares). Scrip is being cornered by knowledgeable investors due to expected unlocking of huge hidden value of its investments. VBC Ferro Alloys had promoted Konaseema Gas Power Ltd. (KGPL) in East Godavari District. KGPL is Gas Based Power Project which has in Phase-I, already implemented
445 MW Power Plant. Plant for the same has been supplied by Siemens.
EPC is by L&T and O&M is by NTPC. As on date, VBC Ferro is holding 13.43 cr. shares at a cost of Rs. 134.30 crs. being 27.91% Equity of KGPL. Other share holders of KGPL are:L & T (5.6 %), ILFS (6.75 %), LIC (4.82 %), GIC (4.82 %), IDBI (8.43 %), International Power Vision (2.01 %), TIFOI (8.89 %). Project cost of Phase-I was 1383 crs. Phase-I was ready for commissioning in 2006 but could not be commissioned due to delay in gas supply from RIL. As a result, project cost stands increased to around 2000 crs(due to interest burden for more than 2 years). Now, KGPL has embarked on Phase-II which involves setting up of 820 MW Plant at a cost of Rs. 2782 crs. which works out to Rs. 3.39 cr. per MW. D.E. Ratio will be 4:1. Phase-II is likely to be implemented by April 2011. Phase-II is being erected at the existing site to avail of ready infrastructure.

MAIN LONG-AWAITED TRIGGER :- L&T is providing 66 cr. deferred payment credit. For Phase II, last year Lehman and an Indian infrastructure finance company had agreed to take Equity in Konaseema @ Rs. 60/- per share to pump USD 75 million. However, due to Lehman bankruptcy, deal did not go through. Now, it is reliably learnt that for Phase II, a big American P.E. Investor will subscribe to Konaseema Equity at Rs. 60/- per share and deal can be finalized by June '06. If, holding of VBC Ferro in KGPL is valued at same price of Rs. 60/-, 13.43 cr. shares of VBC Ferro get a value of Rs. 806 crs. This works out to Rs. 1920/- per share whereas CMP of VBC Ferro is just 15% of same. Konaseema may come out with IPO in 2010 at Rs. 150/. IPO of Konaseema at Rs 150/ can be successfully very easily considering:

1. KSK Energy (another BSE listed company) has huge Equity of Rs. 346 crs., current market price Rs. 180/-. KSK holds Equity stake in some power projects, stake ranging from 49% to 74%. 144 MW equivalent power projects have been commissioned and another 131 MW likely to be commissioned soon. It may be noted that KSK does not have 100% stake in these projects and still market cap of KSK is more than Rs. 6000 crs. Thus, on peer comparison, Konaseema should command much higher valuations.

2. Strong pedigree (marquee of existing investors)
3. Gas based power plant like Konaseema will be at great advantage as gas price is fixed for 5 years whereas thermal power plants (its competitors) will continue to pay higher n higher coal prices each coming year.

4. By the time IPO hits market, Konaseema will be a profit-making company. We feel that share price of VBC Ferro can go upto Rs. 400/- in just 6 months. Once, pre-IPO placement at Rs. 60/- is OFFICIALLY ANNOUNCED(expected in June 09), thereafter share price can race ahead as scrip is bound to catch fancy of brokers/FIs very soon. A terrific Buy.

Source: Internet (SMartInvestment)

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