Stock Review: Kalyani Steel

Though it is marred in controversies because of their mines in Bellary, Kalyani Steel is a good bet. If you see their business model, they are making the alloy steel for the auto, for forging, and for diesel engine makers and they have a very robust performance. 18 months back, they have hived off one of their investment to a separate company, and this is one of the best things about the company. Earlier, the equity base of the company used to be at Rs 46 crore but the company was never getting the valuations of the investment in that proportion. Now, the paid up equity of the company has been reduced to Rs 23 crore.

Going by the financial performance for FY11, the company reported a topline of Rs 1200-1250 crore with EPS of Rs 12.50 on a face value of Rs 5. Q1 performance obviously has not been good because of all this controversy, but I don't think that they have much iron ore requirement because they are making their pig iron and using it for their end products. So I don't think that they should be any problem in obtaining the raw material or iron ore to the extent of about 7-8 lakh tonne which is their annual requirement.

Currently, the promoter holding at Kalyani group stands at 60% and HNIs hold about 15%. The book value of the company is Rs 75-76. So the company should be able to post an EPS of double digit in FY12 and that gives a valuation of about 4.5-5 times to the stock. So again looks very good, could move to about Rs 75 in next 6-8 months time.