Here's why SP Tulsian is bullish on Sunflag Iron

If you see this company having the captive power plant, end-to-end raw material arrangements and all sort of things with a capacity of 3.60 lakh tonne per annum of the special steel rolled products and they are supplied to the railways, defence, automobile, and even the company is exporting to developed countries like US, Europe, South East, Middle East and all that.

Coming on the financial performance of the company, they have a turnover or topline of Rs 1,700 crore for FY17, EBITDA Rs 154 crore, operating profit Rs 85 crore, and profit after tax (PAT) Rs 65 crore which translated into an earnings per share (EPS) of Rs 3.65. If I go by the book value, book value is at Rs 45. So you are getting the share below book value. Company has a debt free status, they don’t have debt at all net of working capital.

If you see the situation, maybe in this last three years, the long term debt of closer to about Rs 350-400 crore has been brought down to zero. The kind of pain which we have been seeing in the steel stocks where lot of debt ridden or huge debt is seen is not seen in case of this company and this is inspite of the huge heavy working capital because if you see the company having a working capital debt of closer to Rs 220 crore, but that is amply supported by the inventory and receivable of Rs 610 crore.

Come on the equity, Rs 180 crore equity, net worth Rs 710 crore as I said that translates into book value of Rs 45 per share and promoter stake of 50 percent. High net worth individuals (HNIs) are holding 22 percent. In addition to this, the technical collaborator, that is Daido Steel of Japan who are the technical collaborator are also holding 10 percent stake in the company as non-promoters. So if you take 50 percent promoter, 10 percent is technical collaboration, i.e. 60 percent and 22 percent by few HNIs that makes about 82 percent. So, very low float of just 18 percent valuing at about maybe Rs 140-150 crore.

In fact the share has seen a good amount of accumulation in this last maybe three or four months because of the auto ancillary theme and all that and Friday we have seen a huge increase in the volume, maybe by about 6-8 times of the average of the last two weeks average.

So, taking all this into consideration, we are keeping a buy call on the stock. In fact we recommended this stock in the past to our clients also about three to four months back or six months back and we have been continuing to have the holding and the same buy call to our clients as well as our investments in the stock and the target for the stock is given at Rs 51 in next six months or so.