As per the latest reports, the fundamentals of Electrosteel Castings do not promise an extremely promising outlook as anticipated earlier. The company is doing well but certain events like the delay in getting sanction from the Environment and Forest Ministry pertaining to the iron-ore mine allocated in Kodolibad, Jharkhand has halted production for a significant period of time. It was earlier expected that production could be started from the second half of 2013.
Another trouble that the company faced was regarding the slow production rate at the coking coal mine in Parbatpur (Jharkhand). Such delays not only have impacts on the revenue front but also increase costs of raw materials and thereby hamper the margins.
The stock still shows a strong upside bias mainly because the industry and sector within which the company is operating will definitely benefit from the 11th 5 year plan’s increased expenditure towards sanitation infrastructure and water supply. Additionally, the strong global presence in the export segment of the company gives it an additional edge over its peers listed with the NSE.
On the financial forefront, we expect the revenues to grow at the rate of 6-7% taking the 2 year annual CAGR and such growth shall mainly be backed by exports. EBIDTA margin might decline expecting rising raw material costs. The present competitive scenario building up shall bring down prices of products and hence tamper with the company’s margins.
‘Bell the Bull’ expects that the current trading levels on the NSE of around Rs. 30 shall be fairly valued only around Rs.40 and not more than that.