SJ I THINK U WAS RIGHT ON JAI BALAJI, I BAUGHT THAT STOCK @ RS 10 IN THE IPO, HOW CAN I BOUGHT IN NOW @ 270.
IT WILL SURE BE A 4 FIG STOCK IN NEXT 4 YRS, A GREAT BUY, I ALSO BELIEVE GODAWARI POWER HAS THE SAME STORY AN AGAIN A FOUR BAGGER IN NEXT 4 YRS.BUT THESE ARE COMMODITY STOCK AND 4 YR VIEW IS IMMATURE TO TAKE.
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Jai Balaji is taking Rs 1,600 crore agenda ahead. Over the next 16 months expect the commissioning or impact of the following: sinter plant (projected commissioning June 2008) special/alloys steel (June 2008), ferro alloys (October 2008), power plant (October 2008), coke oven plant (June 2009), rolling mills (June 2009), pallet plant (April 2009) and ductile pipes (September 2009).
Come to the second way steel manufacturers can potentially beat the trend. Put the plant up at such a low capital cost that the next thing you know is that even your gateman is being poached by competition. Jai Balaji commissioned an integrated million tonnes at Rs 1,600 crore compared to today`s prevailing benchmark of around Rs 3,000 crore.
A combination of various eurekas worked here; the company assumed the commissioning responsibility, deconstructed the project into various modules, negotiated aggressively with respective vendors and in certain instances ventured to create the module itself.
Reference: Jai Balaji reverse engineered its blast furnace with in-house technical capacity at a fraction of the nameplate quotation. When it encountered fleeting acquisition opportunities of HEG Limited`s steel plant and Nilachal Ispat, it immediately paid a cumulative Rs 133 crore cash down; the entire proceeds are likely to be recovered in the first half of 2008-09.
And then, there is the old fashioned way of making money. Doing it through a route that uses a lower proportion of raw material and cash. Jai Balaji is within striking distance of the hot metal cost of Tata Metaliks, an industry benchmark.
This is how the company will reinforce this competitive position: its blast furnace achieved a loading of 2.7 tonnes per cubic metre, which is higher than the industry benchmark of 2.5 tonnes per cubic metre, indicating that fabricated blast furnaces do work.
From a more strategic perspective, it dispensed with the pig iron route for the scale up to 3 million TPA as it foresaw a sharp run up in coke costs and opted for the DRI alternative, which has now been proved bang-on. It could either have acquired an iron ore mine or invested in a sinter plant (to utilise the fines); it invested Rs 300 crore in a sinter plant instead, which will shave off Rs 2,500-plus per tonne of end product.
In my understanding, this is more of a masterstroke than the company is likely to be credited for; not owning a mine on its books will probably invite large governmental allocation; when this transpires, the company will be able to utilize lumps (30 per cent of mine output) and fines (70 per cent of mine output) making a complete use of all its ore.
And finally, the argument of scale. Jai Balaji at an integrated 1.2 million tonnes today is the second or third largest coal-based steel manufacturer in India. It expects to add 2 million TPA in another 40 months (first phase) and another 5 million TPA in the following 30 months (5 million tonnes steel, 3 million tonnes cement and 1,215 MW power plant in Purulia, for Rs 16,000 crore).
That is a consolidated 8 million TPA (coking coal mine, coal mine, coke oven, iron ore, coal, coal washery, pig iron, sinter pallet, sponge iron, SMS, billet, TMT bars and wire rods, alloy steel, steel rounds and bars, power, ferro alloy and ductile pipes) across four locations by 2014. The company has also received a primary approval from the West Bengal government to set up a steel SEZ in the state.
So what will a combination of these four strategic directions do for Jai Balaji?
• Increase revenues to Rs 25,000 crore in about six year from now
• Enhance EBIDTA margins to in excess of 40 per cent in good markets
• And keep its fully diluted equity of around Rs 65 crore (management estimate, not mine)
You don`t need a calculator for that one.
Zerodha (Trading & Demat Account)
RHP
