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)

Scrips to Watch: ICSA INDIA, Titan Industries, Tata Power

ICSA India (Rs. 65.00) (Code : 531524) :- Technology solutions provider in the power sector ICSA India today said it has bagged three orders totalling Rs 464.17 crore from different entities for infrastructure-related works. The company has received an order worth Rs 254.21 crore from the Bihar State Electricity Board for supplying and installing rural electricity infrastructure and household electrification. The second order valued at Rs 170.17 crore was secured from Mahavitaran (Maharashtra State Electricity Distribution) for constructing and distributing transformers in the Nagpur zone. Besides, it has secured a Rs 39.79-crore order from MP Poorv Kshetra Vidyut Vitaran Co for installation of transformer sub-stations. Hyderabad-based ICSA India is in the business of construction of power transmission lines and substations. Its main area of focus is to provide technology to power companies for Transmission and Distribution(T & D) losses. It also provides products and solutions in the field of energy management, energy audit, control applications etc. It is a growth company which can give you handsome return in next one to two years. Accumulate at every decline in the next phase of correction.
Titan Industries (Rs. 726.00) (Code : 500114) :- Is among the few retailers to have managed strong growth in the ongoing slowdown. A presence across price points in both its key businesses —watches and jewellery — and an extensive network spanning 461 outlets, ensure that the company can capitalise on most areas of consumer spending, premium or mass Market, urban or semi-urban. Titan’s precision engineering business broke even in the December quarter, though eyewear business Eye+ is yet to achieve that. The business has good potential given the robust expansion — 30 stores in the last quarter alone — and the high margins possible in eyewear. In December quarter, its net profit declined a bit, but gross profit margins of jewellery actually improved 2.5 percentage points to 6.4 per cent. Titan Industries has the highest return on capital employed in this segment. At CMP of Rs. 721, the stock trades at 15 times its trailing earnings. It is attractive for such a growth company. Buy at every decline.
Tata Power Company (Rs. 666.00) (Code : 500400) : There were reports that Tata Power Ltd. may sell a part of its stake in a 4,000-megawatt (MW) ultra mega power project (UMPP) that it is building at Mundra to fund capacity addition of 5,660 MW. The company may also sell a part of its 74% stake in the 1,050 MW Maithon power project, which it is building in joint venture with Damodar Valley Corporation, says a financial newspaper. The company is considering its options and has not taken a decision. However it denied the rumors which say that the company was trying to sell its stake in two Indonesian coal mines owned by PT Bumi Resources. The company is committed to complete this project as per schedule and it has indicated that finance will not be a constraint. There is good value in this Tata group company. Invest.

Source : Internet (SmartInvestment)