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Saturday, August 23, 2008

Balasore Alloys Limited (BAL)- Investment Analysis

 

Ferrochrome giant Balasore Alloys Limited (Previous name is Ispat Alloys) is currently trading at attractive valuations for long term investors. Company which announced exceptional results in the June quarter will continue to post good results due to strong demand for Ferroalloys in the international market. After recent sharp correction, Commodity prices made strong bounce back in the international markets yesterday which is good news for metal stocks. BAL corrected from 56 to 47 despite good results due to change in market sentiment.

Significant news:

1. Record ferroalloys prices are expected to hold for the rest of the year and a very strong performance is expected in the second half of 2008- Market Watch.

2. Commodities made biggest weekly gain in 33 years- Bloomberg.

3. Rise in commodity prices will continue due to increase in demand from China as country will open closed factories after the Beijing Olympics.

4. Weakness in dollar will make investors to accumulate commodities.

Significant statistic:

1. Balasore Alloys announced 318% increase in net profit in Q1FY09 over Q1FY08.

Profit in Q1 F2008: Rs.5.38 crore
Profit in Q1 FY2009: Rs 22.53 crore

Balasore stock price analysis:

CMP: 47.5 (BSE)
P/E: 6.3
Book value: 43
1 Year high-low: 78-26

Balasore Alloys target price:

1 year target: 80-100 (EPS of 14-16 and P/E of 6-7).

Ideal investment horizon: 2 years to get full benefits.

Why I am recommending BAL:

1. Ferro Alloys sector is on exceptional growth path due to strong demand from China. This strong demand will continue for some more time.

2. BAL posted outstanding Q1 results and is expected to increase EPS to more than 15 levels in this financial year.

3. Commodity prices are once again rising after sharp correction in the recent days.

4. Company announced massive expansion plans which are a good sign for long term investors.

5. International Ferrochrome market will see huge growth from the fourth quarter in FY09 onwards, according to experts.

6. BAL valuations are looking very attractive for long term investors.

7. Parent Ispat group is also doing well in the recent days which may raise the sentiment of investors towards company.

Negative triggers:

1. 80% of its earnings are from exports. So Any Government intervention may spoil the earnings prospects.

2. Global slowdown in economy may impact the company but marginal impact on Ferro Alloys.

Final Advice: Balasore Alloys will give 70-80% returns in 1 year. It will cross 60 (25% returns) by October before results announcement. So medium and long term investors should not hesitate to buy this stock and accumulate more on any further correction. Ferro Alloys bull run will at least last for another 2-3 years. Only worry is Government intervention.

Other stock picks: Closely follow commodity prices and make quick gains.

1. Hindustan Zinc: More than 5% increase in zinc and nickel prices.

2. Rohit Ferrotech: Recent mine buyout and sharp correction.

3. Navbharat Ventures: Bullishness in sugar, Ferro alloys and power and cheap valuations. Good stock for long term.

4. Cairn Energy: Unexpected rise in crude prices by more than $5.

5. Sterlite/Hindalco: Depends on how long this bounce back in commodities will continue.
Source/Credit: Dr.Krishna (Stockmarketguide)
 
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