Friday, 14 September, 2007

Anand Rathi’s Quick Pick - Vesuvius India

Anand Rathi Securities has a ‘Buy’ call on Vesuvius India Ltd with a price target of Rs 250-320 against the current price of Rs 221.

Giving its investment arguments, the brokerage says after making a high of Rs 321 in April 2006, the stock went in to a long corrective phase, and even touched a low of Rs 190 during May 2007. But since then stock is consolidating and formed higher bottoms. This indicates that the stock is now ripe for a fresh up move any time.

“One can accumulate the stock around current levels with stop loss of Rs 200, and can look for short term target of Rs 250 and medium term target of Rs 320,” Anand Rathi says in a report dated Sep 13.

The 52-week high and low for the stock is Rs 280 and Rs 190.10, respectively.

Vesuvius is largest producer of quality steel refractories in India and its parent is a global leader in this segment with 50 manufacturing facilities in 30 countries and seven research and development centres. It’s an almost debt free company despite expanding capacities continuously, the report goes on to say.

The company has three plants in India - biggest one is at Kolkatta and in Vishakhapattanam and Mehsana. It caters mainly to the steel making industry and looking at the growth potential of steel making capacity in India, the long term demand potential for its product is huge and sustainable.

Vesuvius manufactures refractories and systems used to control, regulate and protect the flow of steel in the continuous casting process plus alumina graphite isostatically-pressed tubes, nozzles and stoppers, slide-gate and tube-changer systems and plates, gas-purging plugs and temperature control devices. It also manufactures refractories for the foundry industry, such as crucibles, filters, stoppers and dedicated linings, fused-silica refractories for flat glass manufacture and the melting of polycristalline silicon and refractory linings for high-temperature, heavy-duty industrial applications.

With strong growth in Indian economy the demand for steel is rising very fast. The steel industry is looking for huge capacity addition in coming 3-5 years. Apart from capacity expansion by existing players like Tata Steel, SAIL, JSW Steel, the new big players like Mittals and Posco are also setting up very large capacities. All new steel making capacity involves continuous casting methods wherein the various refractories for flow control and casting of metal.

The parent company of Vesuvius has many unique value added products for industry, for which demand will grow faster as new and modern capacities to manufacture quality steel will come in to existence. So, broad demand potential and outlook for refractories is very attractive.

The company is performing very well and growing steadily, with rising demand from steel industry. The Dec 2006 results appear poor due to exceptional write offs of past bed debts to the extent of Rs 8.7 crore. In the current year the company is doing well and we expect it to improve performance further in second half, as per industry trend, when demand for its products remains high. With improving capacity utilisation, margins are likely to go up further.

The stock is available at less than 10 times 2007-08 earnings, which looks very attractive for a hi-tech MNC company in growth phase, Anand Rathi says in conclusion.