Electrosteel Casting - Ductile Pipe King

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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Below is the update from ECL of its holdings in Electrosteel steels limited post restructuring.
“Eletrosteel Castings announced that post the capital reduction and consolidation of shares by Electrosteel Steels, the shares held by the company in Electrosteel Steels stands reduced from 1,08,98,00,000 equity shares to 2,17,96,000 equity shares”

  • As CMP of 52 Rs (This is on BSE, NSE price of Steels is 11Rs ) for Electrosteel Steels , ECL holding is worth 113 Crores.

  • Assuming the real value of Steels is more, the value will surely shoot up. As with Vedanta taking up stake, there is very high chance of a turnaround in the company.

For those interested in the stock, please track insider buying in October and November. There have been more than 15 deals every alternate days, shows some strong news can be expected.
Check insider trades for the last 10 days in the link.

https://www.valueresearchonline.com/stocks/snapshot.asp?code=1048&utm_source=direct-click&utm_medium=stocks&utm_term=&utm_content=Electrosteel+Castings&utm_campaign=vro-search

Has anyone read the high court order of sept 2018 for compensation .

can you provide the link… I could not trace it…

https://www.valueresearchonline.com/stocks/snapshot.asp?code=1048&utm_source=direct-click&utm_medium=stocks&utm_term=&utm_content=Electrosteel+Castings&utm_campaign=vro-search

Check “insider trades” section of the link above

Anyone tracking this co.? Results for Q3 announced and looks good.

Discl. - Recently invested with small allocation of the PF.

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Interesting note from AUM Capital Research report.

ECL has embarked on a capacity expansion from current 7.25 MTPA to 8.5 MTPA
by June 2023 and 9.5 MTPA by June 2024 at a total outlay of Rs 800 Crs of which more
than Rs 400 Crs have already been incurred. This is expected to enable it to cater to
the incremental demand in the country arising out of the Jal Jeevan Mission of the
Government of India which aims to supply piped drinking water to 150 Mn
households spread across 0.5 Mn villages by 2024.

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ECL prices are defying gravity, feel it’s outside the value zone now. I mean the core business not the expected settlement.
One trigger point can still be the settlement of the coal field amount expected by the management. They have been tightlipped about the value of the same, but there are market participants who surely know these details.

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Super results
Going by Management guidelines of 8.25- 8.5 Lac tonne DI pipe production target , we are expecting top line of 8200-8300 Cr for FY 24-25
PAT margin of 13-14% translates to PAT of 1050 -1100 Cr current MCap is 9800 Cr

Hence available at PE of 9.8 -11 FY 25 earnings.

For FY 26 production will be 9.-9.5 Lakh tinned
Very much undervalued

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Update on track for capex of 8.95 Lac Tonne.
FY 7580 Cr Ebita 1281 Cr PAT 740 Cr (9.8% Margin). FCF at 935 Cr
ROCE/ ROE 19 /19.3 with 10 months order on hand.
33 % reduction in finance costs.
Wont be suprised it exceeds the quidance.

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Key points from Q4 FY 24 call

Business Overview
• Revenue up by 7% YoY ; EBITDA growth of 50% YoY to 346 cr
• Sold 1.96 tonnes of DI pipes in the quarter. Closed FY 24 with 7.5 lakh tonnes of volumes
• Plant shutdown of 15 days in the quarter. One of the reasons for slight drop in EBITDA per tonne
• Robust order book of 6 lakh tonne in hand (4500 crore in value). Revenue visibility of 9 to 10 months.

Capex Plans

• Spent 390 crore out of the planned 650 crore. New capacity will be operational by Oct 2025. Will take overall capacity to 9 lakh tonnes per annum.
• Further, received approval from Board for capacity expansion of Srikalahasti unit. Will increase capacity from 5 lakh to 6.5 lakh tonnes
• Recd approval to acquire 500 acres of land in Odisha, for setting up new DI pipe plant. More details on value of acquisition, to follow in subsequent quarters
• Debt repayment process will not get impacted, due to these capex plans. Will finalize land acquisition once comfortable with balance sheet

Future Outlook & guidance
• With new capacity of 9 lakh tonne being operational, likely to conclude FY 25 with 8.5 lakh tonnes of production. likely to achieve 9 lakh tonne in FY 26. And 1 million tonnes by FY 27
• Seeing very buoyant demand in India – not enough capacity currently to meet demand… Mentioned in opening remarks ‘Company is at the right place at the right time.’

Disc: Tracking position

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Electrosteel should benefit from this, likely.

Holding.

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How does Electrosteel find its pipe’s application in hydropower projects?

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The ‘La Frasnee’ Hydropower plant project in France – in the Jura Mountains near the French-Swiss border – used Electrosteel DI Pipes that were transported via helicopter.

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