Recommendation From Iron & Steel Sector
This section gives a recommendation of a stock having
A GOOD ALLOY FOR YOUR PORTFOLIO
BSE Code: 513142
BSE Volume: 26956
HERE IS WHY
Government thrust on infrastructure/
National Steel Policy
Quality product mix
Balasore Alloys Limited is engaged in the manufacture and mining of ferro alloys. The company is also engaged in manufacturing and selling of ferro chrome of various grades. Its products include high carbon ferro chrome (FeCr60) and low silicon ferro chrome (FeCr65). It focuses on the production of products, such as low and medium-silicon, low phosphorous, medium-carbon and high-chromium. BAL is India’s second largest pure play integrated ferro chrome (FeCr) producer and is one of the few ferro alloys manufacturing companies in the country having captive mines.
Sharp increase in ferrous chrome and chrome prices :- The prices for ferro chrome have increased by ~100 per cent, while chrome prices are up by ~300 per cent since February 2016. The benefits of price rise will be seen in the coming quarters as well. The prices have risen during the previous year; however, the most important question is whether not the prices will remain firm in the coming quarters. In all likelihood, the prices of ferro chrome are expected to remain high owing to huge consolidation among producers.
Stainless steel:- When it comes to ferro chrome, the production growth and price of stainless steel is a key driver of demand, as it accounts for over 85 per cent of global ferro chrome consumption. The ferro chrome industry is largely dependent upon the performance of stainless steel sector. India is the second largest stainless-steel producer in the world after China.
Financials :- On the financial front,
On the annual front, the company posted a 20.75 per cent hike in its net sales to Rs.1,036.90 crore in FY2017, as against Rs.837.97 crore in the previous financial year. The company’s PBIDT witnessed an increase of 129.46 per cent to Rs.203.67 crore in FY2017, as compared to Rs.88.76 crore during the previous financial year. The company’s net profit grew by 379 per cent to Rs.89.53 crore in FY2017 as compared to Rs.18.69 crore in the fiscal year
The key risk for the company’s profitability remains slowdown in the Chinese economy. The stock is currently trading at 6.76 P/E, which is reasonable.
On the expectation that the demand for stainless steel will remain intact and the prices for ferrous chrome will be steady, we have a BUY rating on Balasore Alloys.