Here are fundamental trading ideas from SP Tulsian

But let me just first quickly go into the fundamentals and background of this company probably there are five National Company Law Tribunal (NCLT) cases with respect to steel accounts. One is Bhushan Steel which is listed one, Bhushan Power unlisted, Essar Steel unlisted, Electrosteel Steels Ltd and fifth one is Monnet Ispat.

If you really ask me there are five serious buyers from the Indian entrepreneurs – they are JSW Steel, Tata Steel, Vedanta, Ajay Primal and you can say ArcelorMittal though you cannot call it as an Indian promoter but they all five are serious. Apart from that, many of global players maybe like POSCO, few from South Korea, few from Japan they will all be throwing their hats in the ring along with the PE Investors.

So, there is going to be stiff competition in acquiring this. Obviously, the existing promoters will also be seen in the fray.

Coming on the fundamentals of this company, they have a 5.50 million tonne plant. I won’t be hesitating in saying that this is the best plant, better than JSW Steel and better than Tata Steel. Obviously, better than Steel Authority of India Ltd (SAIL) also in terms of the quality of the flat steel product which they make they are making auto grid steel products supplying to Maruti Suzuki India, Hero Motocorp and all sort of things. I am not saying that the other steel makers are not producing or not supplying. So, this is a situation number one.

Number two, if I just quickly go on to FY17 results of the company and compare it with the JSW Steel which is the strongest player just to give the EBITDA margin the JSW Steel had posted an EBITDA of Rs 12,000 crore with EBITDA margin of 22.1 percent for the whole of FY17. While Bhushan Steel has posted an EBITDA of Rs 3,054 crore with an EBITDA margin of 22.28 percent. That means 18 basis points better than the JSW Steel. In spite of the one-fourth capacity, in spite of the lower capacity utilisation to the extent of about 60 percent because of the working capital constraint and all that.

Thirdly, if you must have read the report, day before that production or the capacity utilisation of Bhushan Steel has improved in the month of August and September to as high as 3,00,000 tonne from 2,40,000 tonne, which they used to operate after the appointment of the interim resolution professional.

So, obviously, all those things by the old promoters were not carried out in a transparent manner because of the non-performing assets (NPA) status and all that.

Lastly, the media report had been loosely suggesting NPA of Rs 50,000 crore which they loosely include the working capital finance also having given. Working capital for a running company and if it is having a turnover of maybe Rs 30,000-40,000 crore a year cannot be called as a NPA because they are supported by the current assets also that is inventory and receivable. So, even if I take NPA of about Rs 45,000 crore because Rs 5,000 seems to be on that account, the NPA Rs 45,000 crore of that on an average as indicated no one has come and given the indications that what kind of NPA has been provided, but it seems to be at about 40 percent.

I feel that looking to competition from the inside sources the banker will be writing back the provisions already which they have made.

So, taking all this into consideration I can go long, can compare it with the other steel players and all that. But due to paucity of time I won’t be going into all those things.

Promoter stake is very high and the equity base, I am not saying that the promoters will be enjoying the same stake and all that -- the public float is very low on market cap of about Rs 1,600-1,700 crore. Paid up equity is very low Rs 45 crore because of that once you have a good news which we have seen in case of Amtek Auto when all four stocks hit the upper circuit day before once we have these kind of news coming in that way Vedanta, ArcelorMittal, Tata Steel, JSW Steel, all have shown interest you won’t be able to catch this stock. One may argue that this is bit high risk high return stock, but risk seems to be lower, return seems to be quite high, so may be with that view share now ruling at Rs 67 we are giving a target of about Rs 80 in next six months or so.