GMR Ferro Alloys and Industries

Buy or not...!

Posted by : ShockMarket

Hi Sri,

Ispat\\`s Q1 FY09 earnings = Rs 0.08 (from BSE website)
Annualized EPS = Rs 0.32.

At market price of 23, the P/E would be 23/0.32 = 71. How did you arrive at 21 P/E for Ispat?

I can\\`t comment on the long term chrome rate as it is nothing more than speculation. I can only be conservative to some extent but I can\\`t be pessimist :-)

Sesa goa: I am not tracking it closely. I guess you are missing the bonus shares that were issued in addition to the stock split. In essence, there are 20 shares now for each share in the market when compared to Q1 FY09. In other words, the EPS is about Rs 32 and not Rs 60 making it a P/E of 5! To simplify, look at the stock price and EPS before the split/bonus. It was trading between Rs 3000 to Rs 4000 with an EPS of Rs 160 for Q1 FY09.

If Sesa goa can enjoy a P/E of 5, then why can\\`t Cronimet? If you look at Cronimet\\`s growth, it has been very consistent. Their strategy is to take small stakes while expanding business and increase their stake as the business gains roots. You can look at the history pdf on their site to understand that.

Overall, in 10 year\\`s time, I see a great potential in GMR Ferro given the positives that I and Shoa already mentioned before.

Yes, if it comes to 30 levels, I\\`ll be the big bull buying :-)

FYI, these days I am reading \\`The Intelligent Investor\\` by Benjamin Graham (Warren\\`s Guru) to kill boredom ;-)

Shock!

Buy or not...!

Posted by : Sriman35

Hi Shock!,

Sorry for the late reply as I am occupied with something else.
GMR ferro is not part of my Portfolio. May that could be another reason for the delayed reply. Anyways coming to the point...

Thanks for the detailed reply with all the calculations.

Difference between Ispat and GMR Ferro:
aware of this, but again thanks for explaining in simple terms. bty, p/e on forward annualised Q1 eps is around 21, not 71.

Chrome rate at 1.5 USD / lbs (while it is at 1.8?):
I dont think the rate of USD 1.5/lb is sustainable for next year.

p/e of 10:
You are very generous. Counters like Sesagoa are not commanding a p/e of more than 2. (Q1 eps is 16.38, annualised eps 60 vs CMP of Rs.112)

News/Message in their website is not much a trigger point for me.

Price came down to 45 levels since my last visit to this board. Will wait for sub 35 levels or till the AGM and/or any + ve and public announcements.

Regards,
Sri

Buy or not...!

Posted by : ShockMarket

Sri,

You can visit cronimet\\`s site for the announcement on GMR ferro\\`s acquisition and its plans:

Here is what it says:
-------------------
With this acquisition, the CRONIMET Group continues to expand its successful production business unit and CRONIMET uses this vertical integration to invest forcefully in the expansion of the value added chain in the area of raw material supplies with ferro-alloys for the stainless steel industry.

Under the leadership of the majority owner CRONIMET Mining GmbH, a consortium of German and South-African companies invested in April of this year already in the mining rights for a significant chromium ore deposit in South Africa.
---------------

It clearly mentions the plan behind the acquisition. I am not sure what more you expect to see. We can wait for the AGM and see if they have more updates to the above.

Lets look at Ispat and Balasore and their last qtr results.

Ispat Industries:
================
CMP = 23
EPS FY09 = 0.32
P/E = 71
Promoter holding = 41%
Net profit margin = 1.03%

Balasore
========
CMP = 41
EPS FY09 = 13.88
P/E = 3
Promoter holding = 46.3%
Net profit margin = 12.06%

Here is my take. While Ispat is promoted by the mittals, it is not a subsidiary of the ArcelorMittal - the famous international MNC. Still Ispat is enjoying a staggering P/E of 71 may be because of some \\`rumors\\` of acquisition. I hope you note the difference between Ispat and GMR Ferro. GMR Ferro is a part of Cronimet (no matter what %). Ispat is NOT a part of ArcelorMittal, they only have mittals in common - no business between the two - but still the market is giving it the hype.

You can see that Balasore is trading at a P/E of just above 3 may be because there are no rumors of L.N. Mittal acquiring it :-)

Show me one company which is a proper subsidiary of an international company of Cronimet\\`s size and reputation which is trading below a P/E of 10.

Here is some projection about GMR Ferro\\`s FY09 earnings. I am being VERY VERY conservative in my calculations as you\\`ll see.

I am taking:
Chrome rate at 1.5 USD / lbs (while it is at 1.8?).
GMR Ferro\\`s annual capacity at 18750 tonnes (while it is 27500 tonnes officially).
Net profit margin at 12% (while it is 30% as per June results)
You can note that the EPS still comes to 26! And giving it a P/E of 10 the market price should be around Rs 260!! I am giving a P/E of 10 as GMR Ferro has huge growth potential given Cronimet\\`s track record. Even if you take a P/E of 5, the price should reach Rs 130 comfortably AFTER BEING VERY VERY CONSERVATIVE!

Chrome / lbs in USD = 1.5
Chrome / kg in USD = 3.3075
Chrome / T in USD = 3307.5
USD in Rs = 44
Chrome / Ton in Rs = 145530
GMR\\`s Capacity in Tons = 18750
Sales in Rs = 2728687500
NPM % = 12
Net profit in Rs = 327442500
Net profit in Cr = 32.74425
Total Shares in Cr = 1.2285
EPS in Rs = 26.65384615!!

Shock!

Buy or not...!

Posted by : mukut

This is heading todward Rs26.

Buy or not...!

Posted by : shoa2546

My expectation is due to synergised increased network of Cronimet and their recent accumulation of chrome ore mines in SA. Pls note recent downfall in chrome price already edged and analyst are expecting rebound in prices in 4rth qtr once again with new contracts. Rgds

Buy or not...!

Posted by : ShockMarket

Shoa,

Thanks for the equation.

Here are my observations:
Going by your calculations, the sales for Q1 should have been Rs 105 Cr. But it is just Rs 39 Cr.

So the smelter hasn\\`t operated at full capacity for sure. If they had operated at full capacity and sold the full output (6875 tons per qtr) even at Indian rate of 70K/ton, they would have made Rs 48 Cr.

How can you assume that they will operate at full capacity for the rest of the year? What are your thoughts on it?

Thanks,
Shock!

Buy or not...!

Posted by : shoa2546

usd 1.8/lbsx2.2x45x75% of capacity export(20625 tons)= rs 371.25 cr
balance capacity 6875 tons x domestic price rs 70000/tons = 48.12 cr
total revenue = 419 crore.
usd/rs exchange rate = rs 45
1kg = 2.2 lbs
Rgds

Buy or not...!

Posted by : Sriman35

Hi Shoa,

I have no doubts about fundamentals or strength of cronimet. They are strong.

But, what a retail investor has to do with the fundamentsls of parent company when the management is not pro-active about its future plans (of gmr ferro).

It is almost 3.5 months since the deal. Any information to bse/nse from the manegement about its plans..??

Financial results of the parent company doesn't matter much. Take the case of Ispat industries or Balsore Alloys (from Mittal group).

Regards,
Sri

Buy or not...!

Posted by : shoa2546

Cronimet is international player having advantage of international network reach in Europe, America, Africa almost all major continents, Chrome price have cracked by 10% and holding at avg level of usd 1.8 / lbs even at this level i can see Cronimet revenue for year should be not less than 419 crore. If Cronimet able to maintain 15 % net margin, can see EPS of rs 51.14/share and at 25% NPM EPS will be at 85.23/per share. I don’t see p/e lower than 5 for chrome companies in bull run probably in 2009.
---------------------------------------------------------
CRONIMET Group – Another very satisfactory annual result
Karlsruhe (AR) – The CRONIMET Group 2007 fiscal year went very well for the family-led Karlsruhe-based company. CRONIMET achieved a new sales record in the Company\\\\`s history over the past fiscal year.

With an annual tonnage of 1.056 million tons CRONIMET Group achieved sales of 3.2 billion Euro (4.7 billion USD) (compared with 3.067 billion Euro/4.046 billion USD in 2006). This increase in sales was able to be achieved despite weak stainless steel activity and globally lower stainless steel production.
The number of employees across the Group increased to 4,180 (2006: 4,052).
In Italy and Turkey new recycling operations were opened.
Armenian Zangezur Copper and Molybdenum Combine AG (ZCMC), in which CRONIMET Mining GmbH has a majority holding, also registered outstanding development in fiscal year 2007 and a very satisfactory result.
For fiscal year 2008 CRONIMET anticipates - following a very positive start - continuing satisfactory across-the-group development of the four business areas of Trading & Distribution, Recycling, Production and Services.
----------------------------------------------------
I dont see problem with company having sales revenue of 4.7 billion USD though Global and having clear intention of vertical integration worlwide.
Rgds

Buy or not...!

Posted by : ShockMarket

Sri,

No:of shares public: 3,576,832
Shares traded on day1: 5,132,706

Where do you think the extra volumes came from? Operators!
SELL-BUY-SELL-BUY...

At the end of the day, the delivery % on that day was just 2%!! What does that signify?? Again, Operator magic!

Yes, they used the fact that the sale has happened at Rs 26 to drive the price down. And we\\`ll have to see how the FIIs and other big guns have used this to accumulate.

Rs 139 may not have much significance apart from being recorded as
the 52-week high for a while and for technicals ofcourse.

Shock!

Buy or not...!

Posted by : ShockMarket

#i can see Cronimet revenue for year should be not less than 419 crore.

Shoa, can you please explain how you arrived at that sales figure?

Thanks,
Shock!

Buy or not...!

Posted by : shoa2546

Cronimet is international player having advantage of international network reach in Europe, America, Africa almost all major continents, Chrome price have cracked by 10% and holding at avg level of usd 1.8 / lbs even at this level i can see Cronimet revenue for year should be not less than 419 crore. If Cronimet able to maintain 15 % net margin, can see EPS of rs 51.14/share and at 25% NPM EPS will be at 85.23/per share. I don’t see p/e lower than 5 for chrome companies in bull run probably in 2009.
---------------------------------------------------------
CRONIMET Group – Another very satisfactory annual result
Karlsruhe (AR) – The CRONIMET Group 2007 fiscal year went very well for the family-led Karlsruhe-based company. CRONIMET achieved a new sales record in the Company\\\\`s history over the past fiscal year.

With an annual tonnage of 1.056 million tons CRONIMET Group achieved sales of 3.2 billion Euro (4.7 billion USD) (compared with 3.067 billion Euro/4.046 billion USD in 2006). This increase in sales was able to be achieved despite weak stainless steel activity and globally lower stainless steel production.
The number of employees across the Group increased to 4,180 (2006: 4,052).
In Italy and Turkey new recycling operations were opened.
Armenian Zangezur Copper and Molybdenum Combine AG (ZCMC), in which CRONIMET Mining GmbH has a majority holding, also registered outstanding development in fiscal year 2007 and a very satisfactory result.
For fiscal year 2008 CRONIMET anticipates - following a very positive start - continuing satisfactory across-the-group development of the four business areas of Trading & Distribution, Recycling, Production and Services.
----------------------------------------------------
I dont see problem with company having sales revenue of 4.7 billion USD though Global and having clear intention of vertical integration worlwide.
Rgds

Buy or not...!

Posted by : Sriman35

Hi mukut,

Can we some more inputs from you on why do you think GMR Ferro is fundamentally not strong, other the the stake sale at Rs.26
That would help a lot. Thanks.

@ShockMarket,
I have seen a reply from you yesterday, but could not be seen today. Seems it got deleted. Dont know why. Anyways I roughly remember it. Will to post my views.

'front company'
Me, first time read it in Epi's post in Facor board. Don't know the facts... that is why I said it is a speculation. On the hind sight, may be, I could not have commented on the speculative news/post.

'operators brought down the value from 139 levels to current price'
Completely disagree with you.
Promoters sold their stake in May at Rs.26. Script listed on bourses for trading on 30th June. What you expect from retail investovor. Buy/Sell/hold..?
The high os Rs.139 is on the first day of trading and that too intra-day high. Absolutely NO importance to that. Within 4 trading days price came down to sub 50 levels.

'one need to be convinced before investing'
That is true. For now, I am not convinced. Will wait for announcements, if any, after AGM on 25/09 or Q2 results before taking a decision.

Regards,
Sri