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Inducto Steel


Inducto Steel is in the business of shipbreaking and selling scrap iron and steel.

The company has reported erratic profitability over the last year including a spurt in revenues in the last financial year – reporting about 1cr of operating profits on revenues of 64cr.

It operated with high levels of debt in relation to accounting net worth and earnings and used up significant cash in operations requiring large equity financing in 2007-08 (diluting former minority shareholders) and debt financing (increasing financial risk).

The business is primarily dependent on the supply (and prices) of old ships and selling prices for iron and steel.  Both these factors are influenced by international market conditions – with shipping having more pronounced and persistent cycles. 

Management are also engaged in real estate activities through joint ventures/partnerships as well as lending activities to other corporate entities.  There is no reason to believe they have any specialised competence in these areas due to the lack of a satisfactory track record.  Therefore, the business is also subject to the risks relevant to the real estate market including building/construction cyclicality and lending activity is exposed to interest rate cycles, not to mention the possibility of loans going sour.

Management have, surprisingly, established a dividend rate that has risen over the last five years – but this must be set in the overall context of the above risks as well as unwise diversification in unrelated areas, which are significant negative factors against them.
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