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Balasore Alloys


Balasore Alloys is in the business of manufacturing high carbon ferro chrome used as a raw material in stainless steel production and other alloys steels.

The company owns several chromite and manganese ore mines in India to source its raw material supplies and is looking for more sources domestically and internationally.  It is in the process of setting a captive power plant with a joint venture partner to secure its power needs.   It also intends to expand production capacities in the near future.

The company is a corporate debt restructuring (CDR) case as a result of past inability to repay debt.  Therefore, it is hampered in carrying out investing and financing activities unless it obtains permission from its bankers.

The company reported somewhat volatile operating performance over the last five years – it reported over 100cr in operating profits on revenues of over 620cr in the last twelve months.  It employed a moderate debt load to finance its operations (as at 30th September, 2011).  The debt/equity ratio has improved substantially from five years ago.

The business is cyclical, suffering from bouts of overcapacity, and is dependent on the fortunes of the stainless steel industry and its cycles.  

It is exposed to the lack of availability of its key raw materials – chrome ore and coking coal, which results in high costs.  It is also heavily power-dependent and is adversely impacted by power tariff increases. 

It exports over 40% of its total sales and is therefore, vulnerable to a strengthening INR that would hit its competitiveness in the global markets.  One of its key export markets, China, is becoming increasingly self sufficient in ferro chrome and this could reduce future revenues in that market.

Management appears to be eagerly awaiting the company’s exit from the CDR mechanism to enable it to get more funding at attractive rates.  Past profitability of the business was abysmal and it would seem senseless to continue expanding and yet, that is what management intends to do.  Apart from this value destruction that would be inflicted on shareholders, it would also reduce free cash flows over that period.

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