Skip to main content

Hira Ferro Alloys


Hira Ferro Alloys is in the business of manufacturing ferro alloys – mainly silico manganese.  They are used as intermediates in manufacturing steel, acting as deoxidant and alloying agents.

The company recently acquired an 8.5mw biomass power plant as a going concern.  Apart from servicing their ferro alloys business, they intend to scale up sales of power in the short-term market through merchant sales.  

Management intends to focus on the power segment in the future since they believe it will provide a more predictable and sustainable earnings model. 

The company reported erratic revenues over the last five years where last year’s revenues appear to be around the mid-point of about 150cr.  It has, however, been consistently profitable – reporting 35cr of operating profits in the last financial year.  It employed a moderate debt load to finance its operations.

The fortunes of the ferro-alloy business are tied to those of the steel industry. Consequently, it is exposed to the steel industry’s persistent cyclicality, which exposes it to periods of diminished demand.

The recent 17-18% p.a. nominal growth in ferro alloy demand has been met with about 35% growth in supply capacity resulting in depressed selling prices within the industry.  This will result in only a staggered pick up in production in the medium-term future.

The business is likely to be exposed to such bouts of overcapacity in the future as well.  Further, the business is global and marked by severe competition and hence, prices are determined internationally based on the global demand/supply equation, which is volatile.

The business is heavily dependent on power, which comprises 35-40% of production cost.  The shortage of power and high costs (3-5 times higher than competing countries) has an adverse impact on profitability.  

Moreover, the business is exposed to frequent shortages of its primary raw materials, and consequent high costs – manganese ore, chrome ore, power coke, other fluxes, etc.  Due to shortages, the company is reliant on imports, which brings consequent risks of a weakening INR.

Comments

  1. UnknownMarch 20, 2012 at 11:27 PM

    good post. Now you can use this companies business listings directory to promote ferro alloys import & export business.

    ReplyDelete
  2. KKSOLUTIONApril 11, 2012 at 3:07 AM

    Hello, I love reading through your blog, I wanted to leave a little comment to support you and wish you a good continuation. Wish you best of luck for all your best efforts.
    Alloys Manufacturer
    Alloys Exporters
    High Carbon Silico Manganese
    Ferro Alloys Manufacturer

    ReplyDelete

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today”. Of cour
1 comment
Read more

Lakshmi Energy

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to be making a valiant
2 comments
Read more

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value. There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries. As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global average.
2 comments
Read more