The Hindu Business Line : Orissa Sponge to make pref allotments — Promoters to get 12 lakh share warrants at Rs 58

The price is arrived at following SEBI's recommended formula. This follows the invalidity of an earlier offer of same size, made in the Q3 of the last fiscal, to the promoters (Torsteel Research Foundation in India and TRFI Investments Pvt Ltd), when they could not pay up the full consideration within the prescribed 90-day timeframe.

The stock price, sensing the development, has been hovering around Rs 60 for the last one month. It had created a new 52-week high at Rs 67.50 on May 25 last.

Today, the stock finished at Rs 53.30.

Dr P.K. Mohanti, Managing Director of the company, who is also among the promoters, told Business Line today that though promoters have to fork out more, it will help the company's expansion plan. The earlier price for the preferential offer was Rs 39.39 per share.

The company has embarked on 150 per cent capacity expansion for sponge iron and billets at a cost of over Rs 200 crore, which would be completed by end of the current fiscal.

Dr Mohanti said that the project envisaged phased expansion from 1 lakh tpa to 10 lakh tpa by 2010-11.

"In the current fiscal, we aim to arrive at 2.5 lakh tonnes ," he added.

According to analysts, a steady rise in domestic demand may sustain the growth momentum for the company. In 2004-05, it recorded a 36 per cent jump in sales and 140 per cent jump in net profit.

In the Q4 of '04-05, the sales growth was 45 per cent and the growth in net was 213 per cent.

According to Mr Pradip Hotchandani of Anagram Stockbroking, the margin is likely to be steady even as the price trends have softened a bit. "The capacity expansion will have a salubrious effect on the production cost, while the demand increase would sustain the sales growth," he added.

Dr Mohanti confirmed that because of lower duties for scrap and billets, imports have become cheaper, but Orissa Sponge was still cost competitive. "The margins may not be super high, but likely to sustain. The demand increase would even out the slight pressure on prices," he added.

A fund manager pointed out that the company's own iron ore mines would keep the production costs under control.

"Considering the cash EPS of Rs 12.61 of 04-05, the stock appears to be undervalued. If one factors in the higher sales growth and continuation of overall margin improvement, then a 100 per cent rise in the bottomline and around 50 per cent topline growth would not be unrealistic," the fund manager observed.

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