Sunflag Iron & Steel

Stock Opportunities
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Hello fellow investors,

I wanted to share some thoughts and seek your insights on Sunflag Iron’s recent financial decisions. As many of you might know, Sunflag Iron holds shares worth 4000 crore rupees in Lloyd Metals. Rather than liquidating these shares to pay off its own debt or to invest in expanding its operations, the company has chosen to further subscribe to the warrants of Lloyd Metals, committing even more cash.

Reference: https://www.bseindia.com/xml-data/corpfiling/AttachHis/7d477533-6d46-440b-aaf3-f1b17866edc1.pdf

This decision has raised a few questions for me:

Strategic Alignment: What might be the strategic reasons behind this move? Is there a potential synergy or future benefit that Sunflag Iron sees in Lloyd Metals that justifies further investment?

Financial Health: How does this decision impact Sunflag Iron’s financial health in the short and long term? What risks does this additional cash commitment entail?

Alternative Uses: Would it have been more prudent for Sunflag Iron to sell the shares and use the proceeds for debt reduction or to invest in its core business operations?

I’m eager to hear your perspectives and analyses on this. Why do you think Sunflag Iron is taking this approach, and what do you believe the implications might be for us as investors?

Regards,
Ellesh

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62

Amounts to approx 200 crores (27 lac shares x 740), to put it in a financial context, this is equivalent to 1.5 years of profit.
Company has Net borrowed 130 crorres in FY 24 and same has been used for 126 cr of capex.
They have a spike in FY 24 cash in Balance sheet (they were prepared for this investment)
It seems like the company has financed this purchase operating profit.

Their intention seems very unclear at the moment. I am sure they have something in their mind about this further investment, could be a bullish view on Lloyds metals, but “investing” is not their primary business, hence I consider this as a negative point. Ideally they have enough money to fund huge greenfield capex but this industry has a limited TAM so that can be a problem here. To increase the TAM they will have to be an exporter. They are also not giving out any dividends or reducing their Debt which has doubled in last 5 years.

I wish the management did some concalls or improve their disclosures.

Note: Invested at lower levels

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