Balasore Alloys


(sougataroy) #1

Balasore Alloys Ltd. is an integrated player having captive chrome ore mines in the state of Odisha. Balasore Alloys earlier known as Ispat allows is India’s second largest pure play integrated Ferrochrome (FeCr) producer current capacity of ~160,000 tonnes per annum. The company has captive chrome ore reserves but does not have access to captive power and is thus partially integrated . (This is a snippet from a research report published by Dimensional securities)

Current result of Facor Alloys is an indication of the profitability trend for this quarter and next. Moreover FeCr prices have been fixed for this quarter (Apr-Jun).

Key drivers for investment thesis

Underappreciated operating leverage

  • Cost of production largely fixed on a per tonne basis given access to captive chrome ore and power supplies
  • Increase in selling price to completely flow down to EBITDA
  • Significant incidence of power costs make Indian producers relatively inefficient (4th quartile of global cost curve), enables maximum operating leverage in a commodity bull cycle
    Sharp increase in FeCr prices and Cr prices
  • FeCr prices up ~100% since the lows in Feb 2016
  • Cr prices up ~300% since lows of Feb 2016
  • Substantial rally in prices in November and December 2016 towards the end of Q3 FY17 after benchmark prices were set for the quarter in September
  • The benefits of the rally would be seen Q4FY17 onward, due to quarterly supply contracts being signed with stainless steel producers at the beginning of every quarter
    Rise in Fe-Cr Prices seems sustainable
  • The global FeCr market is expected to be in a deficit for the next 3-5 years primarily driven by huge consolidation among producers and moderate growth in stainless steel production
    *~60% of global Cr ore is produced by South Africa of which a significant portion is a by-product of platinum mining operations, the production from which has plateaued
  • Most of the South African green-field resources and reserves are held by 2 companies Samancor and Glencore who already produce~ 30% of global FeCr Output and are unlikely to ramp up ore production given large downstream benefits

Disclosure: Have a position in the stock


(abhi2525) #2

Invested since Rs.15 levels.

The metal cycle has just started and with certain great Q4/FY18Q1 results, the stock has a lot of running to do. Keen to learn about the impact of chinese plants shutdown impact.


(Gaurav Agarwal) #3

GLOBAL CHROME WRAP: Chinese ore, alloy prices lose up to 35% after mills slash tenders

Source - https://www.metalbulletin.com/Article/3717510/GLOBAL-CHROME-WRAP-Chinese-ore-alloy-prices-lose-up-to-35-after-mills-slash-tenders.html


(Deepen Thakkar) #4

Thanks for starting this thread , board meeting on 19th may for results and dividend . I am expecting q4 profit in the range of 36-40 crs which translate into 4.5 q4 EPS resulting in full yr EPS of 10 for 16-17 .
Discl : invested


(sougataroy) #5

Between the previous quarter and this FeCR prices have moved from $1.1/lb to $1.65/lb.Given that there is huge operating leverage for integrated players, and PAT for last quarter was ~INR 23 cr, I expect PAT to be much higher than INR 36-40 cr


(Mukesh Amar) #6

http://corporateethos.com/corporate-domain/mittals-pledge-over-5-stake-in-balasore-alloys-with-sks-fin/

Promoters recently pledged stake.
Disc: not invested.


(Ram Arvin) #7

How do u see the effect of this…I understand the prices are fixed per quarter…does this news mean…the prices for q2 fy18 will be substantially low?


(sougataroy) #8

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/0672c010-cf87-4071-8927-059bb6f2144f.pdf

Pref issue to promoters proposed.


(abhi2525) #9

ADD has been increased till 2021 for steel. Very positive for the stock.


(sougataroy) #18

I have posted the link of the website in my previous reply. Since you haven’t checked it out, I will post it again (http://www.dimensional.co.in/Initiating%20Coverage-%20Indian%20FeCr%20Sector.pdf)


(sougataroy) #19

Stellar results of IMFA (http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/344bc125-657a-4266-9da1-2dbc5f59dfa7.pdf). INR 174 cr of PAT for the quarter compared to INR 64 cr in Dec 16. Expect Balasore to deliver similar results tomorrow. Moreover, 2 of IMFA’s mines (http://www.business-standard.com/article/economy-policy/odisha-govt-shuts-down-two-imfa-mines-over-flouting-of-pollution-norms-117050401024_1.html) have been shut therefore one sees a selloff in the market despite extraordinary results. Feel its a good opportunity to buy into stock currently.


(Deepen Thakkar) #20

Yes exemplary results by IMFA bought today as well will add tomm. if it falls further . Based on imfa results ,balasore can also deliver around 10/12 rs EPS for q4 . Let’s keep our fingers crossed . Also pricing for pref allotment and dividend payout of 15/20% of total earnings will be a super booster.
Imfa dividend yield after today’s declaration of 10rs dividend comes above 4%


(sougataroy) #21

PAT of 46 cr in this quarter vs PAT of 42 cr cumulative for the previous 3 quarters. 15000-20000 tonnes of additional capacity online in Q1FY18. In all, a good result. Stock is available at ~6 P/E (LTM)


(abhi2525) #22

With an EPS of Rs.11.35, the price is bound to go up proportionately. The really interesting thing is closing down orders of Chinese plants in the winters which will increase the ferro chrome prices for other manufacturers. Very bullish for this in near to medium term


(phreak) #23

The EPS looks extremely good at Rs.11.35 but FeCr prices are on the decline from above 90k to 75k now. I think current quarter should still be good but FeCr prices need to be tracked constantly to see if earnings can be sustained. IMFA’s mines being closed may also benefit BA.

Disc: Invested


(ankitkhemka7) #24

Was wondering why no one is mentioning the issue with the ED? Significant chunk of Mittal’s shares in Balasore have been frozen by ED and with the promoter in such trouble, does the stock appear a good bet?

Disc: Very small tracking position


(sougataroy) #25

Pramod Mittal only holds 7-8% (and only that portion is froze) and doesnt run the company. His brother Vinod Mittal is the main man along with the CEO, who has nothing to do with ISPAT issue. I dont think its a cause for concern. Moreover, the promoters are issuing warrants of 3.5cr for FY19 and FY20, which should give confidence to the shareholders


(abhi2525) #26

Good time to buy. Mr. Market is ignoring improved fundamentals, placing more emphasis on short term worries.

PS: Invested from 15 levels and added at 64 today after results.


(sougataroy) #27

Agreed. Not sure what the short term worry is


#29

Good set of numbers by IMFA, however, very guarded outlook with a clear acknowledgement that these 2 quarters were the best and Q2 is not expected to be as stellar.

Also, sharing a link for tracking FeCr. prices, seems decently accurate and fairly upto date (2 month lag) http://www.infomine.com/investment/metal-prices/ferro-chrome/1-year/

Disclosure: Not invested, tracking the sector closely