As i told in the community i covered the scrip sometimes earlier.But to safeguard the vested interest of my subscribers i cudnt put the report.Anyway it has moved a lot and here is the note of it.
Scripscan-VBC FERRO ALLOYS
In last few months, Power Industry Stocks have been blazing a new trail with record rise in their share prices:
1) Indowind came out with IPO at Rs. 60/- and has more than doubled since then
2) Torrent Power is having P.E. of more than 50/-.
3) GVK Power P.E. Ratio is 180/-.
4) Reliance Energy P.E. Ratio has jumped to more than 40/-.
Finally, Reliance Power has only bagged Sasan Power Project which will be implemented by 2012 but, is confident of IPO of Rs. 2/- F.V. at Rs. 70-80. In such a scenario, VBC Ferro appears solid bet considering massive value of its investments in Power Sector.
VBC Ferro is engaged in the production of Ferro Silicon and Silico Manganese. For Year Ended 31st March 2007, company had reported sales of Rs. 74 crs. and PAT of 3.72 crs. Its Equity is Rs. 419,49,875 (approx. 41.95 lakh shares). Scrip is being cornered by knowledgeable investors due to expected unlocking of huge hidden value of its investments.
VBC Ferro Alloys had promoted Konaseema Gas Power Ltd. (KGPL) in East Godavari District. KGPL is Gas Based Power Project which has in Phase-I, already implemented 445 MW Power Plant. Plant for the same has been supplied by Siemens. EPC is by L&T and O&M is by NTPC. As on date, VBC Ferro is holding 11.585 cr. shares at a cost of Rs.115.85 crs. being 27.91% Equity of KGPL.
Other share holders of KGPL are:
Name Equity (%)
International Power Vision 2.01
Project cost of Phase-I was 1383 crs. Phase-I is ready to become operational but gas supplies did not start yet. As a result, project cost stands increased to around 1700 crs. Now, KGPL has embarked on Phase-II which involves setting up of 820 MW Plant at a cost of Rs. 2782 crs. which works out to Rs. 3.39 cr. per M.W. D.E. Ratio will be 4:1. Phase-II is likely to be implemented by April 2010. Phase-II is being erected at the existing site to avail of ready infrastructure.
VBC Ferro will take another 3 cr. shares at Rs. 5/- premium (total Rs. 45 crs.) which will enhance its total holding in KGPL to 14.585 cr. shares. KGPL has already tied-up with RIL and GSPCL for gas supply which is likely to commence from March 2008. Company has also signed an M.O.U. with PTC for sale of 50% of total power generation. KGPL is ideally located as it is hardly 15 Km. from K.G. Basin. In Phase-II, following FII are likely to take Equity of KGPL:
1) POSF Ltd.
2) SAS Trustee.
3) Statewide Superannuation Pty Ltd.
4) Westscheme Pty Ltd
L&T is providing 66 cr. deferred payment credit. It is reliably learnt that for Phase-II, KGPL may make pre-IPO placement of Equity at Rs. 50/- per share. A report in Eco Times (Page No. 19) dated 15th Oct. says "Four Australian Pension Funds are in advanced talks to invest over Rs. 1300 cr. in KGPL. About 26 cr. shares would be placed to the funds at a price of about Rs. 45-50 per share. The IPO is expected to be announced in the first half of 2008 once KGPL gets gas supply". If, holding of VBC Ferro in KGPL is valued at same price of Rs. 50/-, 14.585 cr. shares of VBC Ferro get a value of Rs. 729 crs. This works out to Rs. 1730/- per share whereas CMP of VBC Ferro is just 12% of same.
Once, KGPL gets gas supply and power generation starts in June -08, company may come out with IPO at Rs. 100/- per share. Considering that Reliance Power may price its IPO at Rs. 2/- at Rs. 80/- per share (Rs. 400/- for Rs. 10/- F.V.) although, its Power Plant will be commissioned in 2012, KGPL IPO at Rs. 100/- should be a big success. Thus, Equity Holding of VBC Ferro (calculated at Rs. 100/-) should command market value of nearly Rs. 1500 crs. It is reliably learnt that VBC Ferro may make preferential offer of its Equity to some FII at Rs. 300/- per share which will take its Equity to around 6.2 cr. shares (62 lakh shares). Even then, market value of VBC Holding in KGPL will work out to nearly Rs. 2400/- per share. KGPL may be listed at significant premium to its IPO price of Rs. 100/- considering of renowned strategic investors.
VBC Ferro also holds 60 lakh shares in Orissa Power Corporation which is implementing 100 MW Hydel Power Plant out of which 20 MW may start operations in next 3 months. This investment may also have market value of nearly 60 crs. Further, VBC Ferro is investing money in another company which is implementing 45 MW Thermal Power Plant which will supply power to VBC Ferro at concessional rates to bring down power cost of VBC Ferro.
In fact, KGPL IPO may turn out to be one of the hottest IPOs of 2008 considering giants like L&T, ILFS, IDBI, GIC, LIC, Australian Funds are share holder of KGPL (very few companies will have such a big list of renowned investors). KGPL has settled for the best in all respects as Siemens, L&T, NTPC are also associated with it for plant and its erection. It is not proper to forecast at what price KGPL will be listed but, we can value investment of VBC Ferro at proposed IPO price of Rs. 100/- then, value of its investment will work out to Rs. 2400/- per share. Looking at this, VBC Ferro is really underpriced as company makes profits from its core business as well. Once, announcement about QIP at Rs. 300/- is made, VBC Ferro Scrip will be re-rated.
Conclusion-We feel that share price of VBC Ferro can easily go upto Rs. 300-350/- in just 4-6 months. Once, pre-IPO placement at Rs. 50/- is finalized, thereafter share price can race ahead to Rs. 400-450/- as scrip is bound to catch fancy of brokers/FIs very soon. A terrific Buy.
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