Bhagwandas Metals trades in steel products.
The general demand outlook for steel appears to be positive
with government expenditure on infrastructure projects and improving consumer
demand – although the company’s ability to outsmart competitors is not as
certain.
The company reported reasonably stable revenues and
operating profits (albeit with wafer-thin margins) over the last five years –
reporting 63lacs of operating profits on revenues of 70cr. It operated with a net cash position of about
2cr as at the end of the last financial year.
The primary issue with the company is that it’s a trading
outfit and does not own manufacturing facilities – while this gives it
flexibility to adjust to market conditions, it doesn’t own the value-generating
activities that is essential for building competitive strength in its industry.
Demand for steel is subject to the interest rate cycle and a
period of high interest rates (such as currently) results in delayed government
projects and consumer spending.
Moreover, the industry suffers from bouts of overcapacity
and stiff competition that depresses sales and profit margins.
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