The Hindu Business Line : Bhushan Steel price movements surprise analysts

Mumbai, Nov. 27 The stock price movements of Bhushan Steel Ltd seem to have left every one baffled. Yesterday, the stock had touched a 52-week high of Rs 1,625 and was up 45.67 per cent and today, it was down 13.17 per cent to end at Rs 1,368.20. When asked, analysts said that they were surprised at such a big jump in the prices of the company’s stock prices.

The company had earlier announced an increase of its capacity four folds to around 4.5 million tonnes and also an increase in Bhushan Energy’s capacity from 300 MW to 3,000-MW. But these are long-term plans which definitely cannot trigger such a surge in the company’s share prices say analysts.

Mr Nitin Jhori, Chief Financial Officer of the company, said he himself was surprised by the 45.67 per cent increase in prices. “Announcement of expansion plans cannot possibly bring our share prices up so high. We simply do not have a clue as to why the prices have gone up so high,” he said. The company has made clarification on the BSE Web site regarding the matter, stating that neither the company had any plan nor had any conversation with anybody in the past regarding diluting the stake.

An analyst with a brokerage believes that maybe some amount of short-covering ahead of the expiry of the futures and options (this Thursday) could have actually pushed up the prices.

While another analyst, who did not want to be quoted, said that there was a certain amount of manipulation taking place as the price increase that took place was not of a justifiable amount. SEBI now plans on examining this sudden jump in the prices of the stock though the regulators will only take required measures once it studies the price movements carefully.

Some analysts were of the impression that maybe the fact that SEBI has decided to probe into the matter had bought down prices today by 13.17 per cent

Also Emkay Securities on Tuesday downgraded the company from a hold to a sell with a target price of Rs 944.

“After a massive run up of 45 per cent in a single day, the stock has now fully priced in FY10 earnings where its FDEPS estimate of Rs 171. At FY10, the stock is currently trading at 9.2x, trading at a premium of 26 per cent to integrated steel companies such as Tata Steel on FY09 and FY10 basis. Since initiation, the stock has moved 2.68x, generating a return of 168 per cent in around seven months. Yesterday’s run up of BSL captures the entire valuation for FY10. Although, the company has significant expansion plans going forward, however, the current run up in the stock leaves little headroom for upside,” according to Emkay Share and Stock Brokers Ltd report.

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