28-Nov-2018 : Sunflag Iron and Steel Co. Ltd. is a prestigious unit of the SUN FLAG GROUP. The plant has a capacity to produce 500,000 tonnes per annum of high quality special steel using liquid pig iron and sponge iron as basic inputs. Sunflag steel was incorporated as a Public Ltd company in the year 1989. Sunflag steel is incorporating the most sophisticated steel making technologies in collaboration with Krupp Industrietechnik GmBH, Mannesmann Demag Huttentechnik, MDS Mannesmann  Demag Sack GmbH and Hamburg Consulting and Steel Engineering GmbH of  West Germany. It has also entered into technical collaboration with Daido Steel Company, Japan in the year 2010.

Sunflag iron mainly caters to the automobile industry. Its products are available in different profiles e.g. Round Bars, Round Cornered Squares in straight bars, Round and hexagonal wire rods as coils, hexagonal and flat sections straight bars, as well as bright bars. Apart from automotive sector, it supplies to Indian Railways, Ordinance Factories, Power Sector and other general engineering areas. Apart from supplying to the domestic companies, it also exports steel to South East Asian countries, Middle eastern countries, European countries and The United States.

Sunflag has one captive coal mine in Belgaon and hence it enjoys a cost advantage. It has Manganese and iron ore mines as well, for which mining lease under process.

It has few subsidiaries and JVs; however, they are yet to contribute to the topline or bottomline significantly.

Steel price has shot up in the first two quarters of the financial year 2019. Though it has declined again in Q3, we believe that the steel price will be stabilized going forward. We believe that automotive sector will continue doing well. Apart from the automotive, infrastructure and capital goods also provide the required impetus going forward.

Sunflag has quite robust balance sheet with debt equity ratio close to 0.36. The company is expanding its existing Steel Melt shop to produce high quality clean steel. The company has undertaken expansion to produce rolled products with higher degree of reduction ratio. Overall capital outlay for this project is Rs 450 crores. These projects will be executed over a period of 24 months.

In FY-2018, the company clocks revenue of 2074 crore, an increase of 37% over the last financial year and profit after tax increased by 99% to 130 crores. Moreover, in the first half of the FY-2019, the company clocks a revenue of 1173 crore, which is 10% higher than H1-FY-2017. Net profit after tax increased by 51% to 77.5 crores.

For the financial year 2018, the company has given a dividend of Rs 0.50 per share.

Promoter holding is 49.06%. Daido Steel Company of Japan is holding 10% equity.

Sunflag steel has achieved a half yearly EPS of 4.3. As we believe that second half will be better for the company, the annual EPS is expected to be around 8 (considering slight decline in realization). Based on this assumption, we set a target of Rs 75 for the next 12 months, which is 30% more than current market price of Rs 57.

BSE – 500404

NSE – SUNFLAG

Written by Research Analyst Suvendu Manna

Disclaimer : The research analyst has position in the stock as on the date of writing this article.

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