VBC has invested Rs 135 crores for 30% stake in Konaseema Gas Power project which has put up a 445 MW Natural Gas based power project at a total investment of over Rs 1400 crores. Start of commercial production of Konaseema project will lead to substantial benefits to the shareholders of VBC Ferro given its small Equity Capital of Rs 4.2 crores & may lead to an upward rerating of VBC Ferro stock.
VBC Ferro Alloys Ltd.
VBC has invested Rs 135 crores for 30% stake in Konaseema Gas Power project which has put up a 445 MW Natural Gas based power project at a total investment of over Rs 1400 crores. Start of commercial production of Konaseema project will lead to substantial benefits to the shareholders of VBC Ferro given its small Equity Capital of Rs 4.2 crores & may lead to an upward rerating of VBC Ferro stock.
VBC Ferro Alloys Ltd. (VBCFAL) was incorporated in 1981 and set up a plant for production of 10,000 TPA of Ferro Silicon at Rudraram Village, Medak District, Andhra Pradesh in the year 1984. The plant went into commercial production in April 1985. VBCFAL is currently operating a Ferro Alloy Plant comprising of 2 nos. sub-merged arc furnaces of 16.5 MVA capacities each having a installed capacity to produce 10,000 MTPA of Ferro Silicon, 31,500 MTPA of Ferro Chrome and 27,000 MTPA of Silicon Manganese /Ferro Manganese.
The factory premise is situated on land measuring 80 acres (approx.) at Rudraram. The factory premises has all the facilities like raw material handling system, pollution control system, Pump House, Laboratories, fully automated control system for furnaces & weighing-batching, EOT Cranes, and In-house Power Sub-station with 25 MVA Power Transformer etc. It is situated close to 132 KVA power line of AP Transco; the raw materials required are available within radius of 200/250 KM.
The Company is currently selling its products directly through its own sales depot located at Kolkata, New Delhi and Chennai and through its agents. The Company sells its products through direct tendering process where it has been enlisted as registered vendors. The Company is presently exporting to countries like China, Japan, Korea, Singapore, Canada, Itly, Taiwan, Turkey, Abu Dhabi, Germany, Mexico, Greece etc.
Some of the major Indian clients of VBCFAL include Panchamahal Steel Limited, Baroda, Sunflag Iron & Steel Limited, Nagpur, Mahindra & Mahindra Limited, Mumbai, Shah Alloys Limited, Ahmedabad, Jindal Steel & Power Limited, Raigarh, Jayaswals Nico Limited, Nagpur, Bharat Heavy Electrical Ltd., Hyderabad, Mishra Dhatu Nigam Ltd., Hyderabad, Visakhapatnam Steel Plant, Visakhapatnam, Indo German International Pvt. Ltd., New Delhi and Nilion Exports Limited, Mumbai.
INVESTMENT IN POWER PROJECTS
VBC Ferro has invested substantial amounts in Power Projects of the group.
Konaseema Gas Power Ltd. – VBC Ferro has invested Rs 135 crores towards Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs.1400 crores has been funded through Equity of Rs 440 crores and the balance as debt. The project has been commissioned, however it is not operational due to non availability of Natural Gas. The plant is expected to be operational by Mar 2009 with new gas availability from ONGC & Reliance.
Orissa Power Consortium Ltd. – The company has invested Rs 6.17 crores towards Equity of Orissa Power Consortium Ltd., which is setting up a 20MW Dam based Hydro Power project in Orissa.
CONCLUSION
Investment in the shares of VBC Ferro is recommended for investors with High Risk appetite in view of various risks and uncertainties attached, however the stock holds potential for high returns.
First the Risks
The fortunes of company’s core business of Ferro Alloys is dependent to a great extent on global prices of raw material and finished products and in the event of any adverse movement in the price of either, the financials of the company may get affected.
The company has made substantial investments in Konaseema Gas Power Ltd.. The power project which has not been operational till date due to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. However in the event of delays in availability of Natural Gas, the financials of Konaseema may be adversely impacted which will impact valuations of VBC Ferro.
The other major risk is the contingent liabilities in the form of various corporate guarantees given by VBC Ferro Alloys for various group companies.
Coming to the positive side
VBC Ferro Alloys is involved in the manufacture of Ferro Alloys. The company has its plant located at Medak Distt. Of Andhra Pradesh on land area of around 80 acres.
The company has made investments of Rs 135 crores in the Equity Capital of Konaseema Gas Power Ltd. and holds approximately 30% of the Equity of Konaseema. Konaseema has set up a 445 MW Gas Based power project. The total project cost of around Rs 1400 crores has been funded through Equity of Rs 440 crores and the balance as debt.
The power project which has not been operational till date to non availability of Natural Gas is expected to be operational by March 2009 with new gas availability from ONGC and Reliance in the KG Basin. The start of commercial operations of Konaseema Gas Power project would be a big positive for shareholders of VBC Ferro since further value unlocking can happen when Konaseema goes public or inducts a financial investor.
The management’s optimism is evident from the fact that Konaseema has embarked upon further expansion of its capacity to 1265 MW by setting up additional capacity of 820 MW in Stage-II. The financial closure of Stage-II is at an advanced stage.
VBC Ferro has a small Equity of Rs 4.20 crores and high Book Value of Rs 322. The company has a market cap of around Rs 97 crores and Unsecured loans of Rs 27 crores, the enterprise value of the company is less than the investments of Rs 144 crores that it has made in Associate companies namely Konaseema (Rs 135 crores) and Orissa Power Consortium Ltd. (Rs 6.17 crores).
The benefits to the shareholders of VBC Ferro will be immense after the operation of Konaseema plant given a very small Equity Capital of Rs 4.20 crores.
