CMP 202/-
Buy
Kalyani steels is a part of well known Kalyani Group, it is engaged in manufacturing of - Pig iron, alloy & special steels and Rolled products. The company has huge capacity of pig iron of 6,70,000 MTs [produced only 3,50,262 MTs last year due to tough market]. For blooms and rolled products it has capacity of 1,35,065 and 2,50,000 capacity [again with low utilization last year due to difficult market conditions].
The recovery of Auto, Auto ancilliary & forging sector, to boost the demand for company's products, which in turn will push utilization levels and sales as well as profit margins. Improvement is visible in current year's working. Still this year may be the year of consolidation and next year growth will be more remarkable, particularly on margin front, which will boost the sales & profits significantly.
The immediate value un-locking for stock will happen due to de-merger of its investments held directly as well as in subsidiaries worth much more then its present market cap. Against present Mkt cap of Rs 900 Crs, value of Investments alone is around 1200 Crs [see table on next page, for investment details].
Looking to better core business outlook for FY 10-11 as well as immediate value unlocking due to de-merger of investments in to a separate company - Kalyani Investments [share holders will get 1 share of Kalyani investment for 10 shares of Kalyani steel]; the scope for appreciation is significant. On combined valuation basis, we expect a 50% appreciation in next 6 months. BUY.
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