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ATS Company Reports: Electro steel castings ltd.
1.
2. Current price BSE 20.90
Sector Casting and Forging
No of shares 343.82 Million
52 week high 36.90
52 week low 14.52
BSE Sensex 28503.30
Nifty 8647.75
Average Volume BSE 82570
Average Volume NSE 303910
BSE Code 5000128
NSE Symbol ELECTCAST
Recommendation
– BUY/HOLD
Date – 13/03/2015
Electrosteel Castings Ltd.
3. Company Overview
Electrosteel Castings Ltd is largest manufacturer of ductile iron (DI) spun pipes in India. The company is a
water infrastructure company providing techno-economic solutions for water supply and sewerage systems.
They are engaged in the business of manufacturing Ductile Iron Pipes and Fittings and Cast Iron Pipes. They
also undertake turnkey solutions for water transportation and sewerage management, which include
manufacturing DI Pipes, supplying and laying various types of pipes, operating the system and transferring to
the owners. The company is headquartered at Kolkata and having their manufacturing facilities at Elavur in
Tamilnadu, Khardah and Haldia in West Bengal. Electrosteel Castings Ltd was incorporated in the year 1955.
To meet the ever growing demand of its quality products and with Electrosteel acquired 46% stake in Lanco
Industries Limited in March 2002, which is involved in manufacturing of DI Pipes, Pig Iron, Cement and
Castings.
With respect to strengthening India's own infrastructure, Electrosteel ventured into the Steel Manufacturing
industry through its promoted Company Electrosteel Steels Limited. An Integrated Steel Plant has been set up
which is capable of producing 2.5 Million metric tonnes of Hot Metal, which is further processed into Pig Iron,
Billets, TMT Bars, Wire Rods and Ductile Iron Pipes.
Presently, over 60% of its products are exported around the world and Electrosteel has its subsidiaries in
eleven countries.
The current market capitalisation stands at Rs 788.87 crore. The company has reported a standalone sales of
Rs 597.44 crore and a Net Profit of Rs 15.76 crore for the quarter ended Dec 2014.
5. Industry Overview
The global forgings industry is expected to grow at a CAGR of 9.42% over 2012-2016. One of the key factors
of growth in this sector is the increasing demand from the automotive industry and international forgings being
outsourced from Asia and Africa.
The industry has grown by 32.1% in dealer's market worldwide and 40.2% in value during2013, ensuring the
profitability of the industry, globally. The deal value, which the forging industry achieved in 2012 was 203%
higher than 2009, thereby widening the market. Asia dominated production in the realm of forging steel
manufacture. In the overall business, there was a decline in the US and the European markets (Source:
Global forging industry outlook, 2012-2016).
India's forgings industry currently operates at 60-70% of its operational efficiency. New technology and mass
production could mean more efficiency and lower cost. As the demand for high quality heavy forged
components rises in India, major industry players look for joint ventures and partnerships for capacity
expansion and technology up-gradation. This creates opportunities for global players to establish or increase
their presence in India.
The automobile industry in India has flourished at a healthy rate of 20% yoy from FY2006 to 2012, but has
reported a slowdown with the current growth rate sliding under 8%.Over-dependence on the automobile sector
could increase the risk for this industry. The12th Plan promises high growth for industry segments like power
generation, petrochemicals and the ship building industries. This, in turn, is expected to generate a demand
for heavy forged components. Based on this growth, demand for Indian forged components is predicted to rise
up to4.9 million tons by 2015-16. To meet this demand forging companies have already started expanding
their capacities through joint ventures. Inclusion of non-auto components in their product portfolio will help
them capitalize on the growing demand in the non-auto forging segment
12. Investment Rationalize
Company was able to sustain its revenue growth even in the adverse market situations.
Reserves of the company stands at Rs.2447 Crores, which help the company in order internally finance its
financial requirements.
The domestic demand of Ductile Iron pipes fittings and Cast Iron pipes are supposed to increase mainly due
to major irrigation and water supply projects by the government.
Usage of cost effective manufacturing technology will add to the cost advantage of the company.
Entry into South American and African markets as well as improving economic situation in European market
will add to the companies revenue.
Advantage of first entry into market ie, Electrosteel Castings Ltd. is the first manufacturer of Ductile iron
pipes in India.
Current market price of the stock is well below the book value of Rs.61. Which means the stock is available
in discounted prices.
Growth forecast of the casting and forging industry and significant under performance of the company in the
current market rally will add to the growth prospects of the company.
Company is currently operates in very low capacity when it is compared with actual operational capacity, so
increase in market demand will help the company to operate in optimum limits which in turn add on to sales.