The Hindu Business Line : Bhushan Steel: Valuations attract sustained buying

Brokers said that apart from the feel-good factor surrounding the steel sector scrips currently, the counter has been attracting attention on valuations alone.

According to analysts, the Khopoli plant is expected to be the major growth driver for the company over the next two years. "Bhushan Steel has created a huge manufacturing facility at Khopoli, which is being commissioned in phases. The enhanced capacity is expected to cater to western and southern markets and ramp up its international business. Phase II is expected to go on stream shortly,'' Mr Bhavin Chheda of Pioneer Intermediaries said.

According to him, once the Khopoli plant goes on stream the substantial ramp up in overall operations will drive its sales and net profits by a CAGR of 30 per cent and 50 per cent, respectively, up to fiscal 2006.

This facility is expected to act as the single point source for a wide range of products such as wide CR, galvanised and colour-coated sheets, high-tensile steel strapping, hardened and tempered strips and precision tubes.

Bhushan Steel is the third largest producer of cold-rolled products accounting for 11 per cent of total after SAIL (38 per cent) and Tata Steel (11 per cent). It is a dominant player servicing the high margin automobile and white goods sector. It counts on Maruti, Tata Engineering, M&M, Bajaj Auto, LG, Whirlpool, Samsung, Bhel, and L&T as some of its major clients.

"In fact, currently, it is the only Indian company supplying to Maruti for outer car body panel and accounted for 47 per cent of its requirements in financial year 2003. Its six-year extension of its strategic alliance with Sumitomo Metal Industries, Japan, is expected to open up new business avenues in the automotive industry as well as increase its share to Maruti around 65 per cent,'' Mr Chheda added.

Analysts believe the stock would continue to attract attention on account of a re-rating in valuations. "The company is quoting at a 20-30 per cent discount to industry valuations,'' sources said.

However, there is concern over the fact that the company is not a fully integrated player in the sense that it sources its key raw material - hot-rolled - externally. And it is not always possible to pass on cost escalation (in HR) to its consumers.

The stock ended the day at Rs 103.70 up 9.97 per cent with around 57,097 shares traded on the BSE. On the NSE, it ended the day at Rs 103.70 up 10.03 per cent with around 1.45 lakh shares traded.