Electrosteel Casting - Ductile Pipe King

Stock Opportunities Untested - but worth a good look
1

Team Value Pickers,

Initiating a new thread on the forum, as I did not find anything covering this already. There is a topic covering Srikalahasthi Pipes Ltd, but not the parent company Elector Steel Casting Ltd (ECL).
DO NOT CONFUSE THIS TO BANKRUPT ElectroSteel Steel Ltd (ESL), which is under NCLT, and probably going to be acquired by Vedanta.

Background:

  1. Its a pioneer of introducing Ductile Iron Pipes in India
  2. Over 5 decades of existence
  3. Presently, over 60% of its products are exported around the world and Electrosteel has its subsidiaries in 11 countries
  4. Electrosteel acquired 46% stake in Lanco Industries Limited in March 2002, which is involved in manufacturing of DI Pipes, Pig Iron, Cement and Castings. This is not called Sri Kalahasti Pipes
  5. It has over 40% market share in the DI pipes market in the west , and very high market share in south through Srikalahasti pipes (around 60%) need to confirm this.

Current situation

  1. Market Cap - 894 Crores
  2. Book value - 69 Rs
  3. CMP - 25.15 Rs(040618)
  4. Associates-
  5. a - Elector Steel Steels Ltd (Market Cap 267 Cr) - ECL Stake 45.23% - Current worth of this 120 Cr
    4.b - Srikalahasti Pipes Lts (Market Cap 1430 Cr) ECL Stake 41.33 % Stake - Current worth of this is 591 Cr
  6. Holding in subsidiaries is worth - 120+ 591 = 711
  7. Current profit of ECL is 165 Crores for March 2018

My analysis

  1. The core ECL business generating a profit of 165 Cr (98 ECL business + 66 Associates)(Other income was high last year at 125 Cr, need to dig deeper) is available at a price of 183 Crores (Current Market Cap - Value of holding in subsidiaries/ associates) 894-711

  2. With more municipalities across the country showing interest on sanitation and drinking water, ECL will be a big beneficiary.

  3. There is an overhang of Electrosteel liquidation, once this gets resolved, the book value should reflect this.

Please note the following

  1. A big percent of ECL holding in Electrosteel Steels limited is pledged, not sure of the correct percent, so considering full value. Some inputs from ValuePickers on this will be useful.
  2. Not sure of the impact to services in case of Vedanta takeover of ESL.
  3. Push for Smart Cities across India, will open up new opportunities for ECL on the water and sanitation side.

Disclosure - Investing from 32 Rs onward, less than 5% of portfolio exposure.

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