Kalyani Steels Limited (F.V : Rs 5 ) - 500235: Portfolio pick at CMP of 185-187 1 Year Target Rs 280

Kalyani Steels is part of Kalyani Group, established in mid 1960s, is an Indian multi-national with high technology, engineering & manufacturing capability across critical sectors such as Engineering Steel, Automotive, Industrial, Renewable Energy, Urban Infrastructure and Specialty Chemicals. With end-to-end capability and manufacturing footprint across India, Germany, Sweden, & China, the Group has an annual turnover of over 12,000 Crores and market capitalization of its listed entities approximately 10,000 crores. The group has joint ventures with some of the world leaders such as Meritor, USA, Carpenter Technology Corporation, USA, Maxion Wheels, Brazil, FAW Corporation, China, Alstom, France and David Brown, UK.

Guided by visionary leadership of Mr. B. N. Kalyani, Group Chairman, with strong emphasis on market leadership through technology and it's over 10,000 strong engineering global workforce, the group today is a market leader in all its respective business segments.

Kalyani Steels Limited : Kalyani Steels was established in 1973 to fulfil the in-house requirements of forging quality steel of the Kalyani Group.

Today the Company is a leading manufacturer of Forging Quality and other Engineering Quality Carbon and Alloy Steels using the Electric Arc Furnace route. Over the years, Kalyani Steels has been continuously upgrading technology and infrastructure. The first such technology update was achieved through a technology tie-up with AICHI Steels of Japan.

With the equipment and technology for secondary refining facilities from MAN GHH - Germany, the Bloom Caster designed by CLECIM - France, and technology from CONCAST Switzerland, Electro Slag Remelting equipment and technology from INTECO - Austria, Kalyani Steels manufactures virtually all types of steel.

Although the forging industry in India is the primary market for the company's products, manufacturers of various components for commercial vehicles, two-wheelers, diesel engines, bearings, tractors, turbines and railways also form a substantial part of the company's clientele. Kalyani Steels has now set up a new plant to manufacture steel using the less power intensive mini-blast furnace route. The new facility is in the Hospet-Bellary region of Karnataka State, where good quality iron ore is abundantly available. The facilities at Kalyani Steels are on par with any sophisticated steel manufacturer in the world. Facilities in Pune include 35T Electric Arc Furnace (EAF), Ladle Furnace (LF), Vacuum Degassing (VD), Vacuum Oxygen Decarburisation (VOD) for melting and refining of steel. KSL also has one of India's largest Bloom Continuous Caster and Electro Slag Refining Unit. There are two rolling mills - one twin stand 550 mm dia. three high rolling mill and another of 500 mm dia. Three high rolling mill coupled with a 400 mm dia 3 high twin stands. The Mini-Blast technology at Hospet has been provided by Tata Korf - Korf Technology of Brazil. It is planned to produce 2,40,000 MT of pig iron per annum. The alloy steel manufacturing is based on the modern energy and cost saving technology of ~ Energy Optimising Furnace' (EOF). This modern set-up at Hospet also has ladle furnaces, vacuum degasser and continuous casting of both blooms and billets to produce high quality alloy steels at competitive costs. A blooming mill is installed to roll rounds and billets. Products: : Kalyani Steels Limited has tied up with Carpenter Technology Corporation of USA to manufacture high value steels like tool steels, die steels, valves steels and stainless steels, etc. for domestic and export markets. This new Joint Venture Company Kalyani-Carpenter Special Steels Limited manufactures these steels and Kalyani-Carpenter Metal Centres Pvt. Ltd. handles marketing and distributing these high value added steels. Kalyani Steels Limited produce ingots, hot rolled round bars and RCS billets in Carbon, Alloy and micro-alloyed grades of steel from Hospet Plant. Kalyani-Carpenter Special Steels Ltd. manufactures hot rolled bars and billets in carbon, alloy, micro- alloy steels and high alloy steels like tool steels, die steels, valve steels and stainless steels at Pune plant.

Financials Of Company:

	Top of Form 2016 Bottom of Form	2015	2014	2013	2012
Revenue	1,180.47	1,226.62	1,115.99	809.07	989.54
Other Income	2.66	2.71	11.79	7.16	22.42
Total Income	1,183.12	1,229.33	1,127.78	816.22	1,011.96
Expenditure	-945.18	-1,059.53	-987.36	-732.44	-933.25
Interest	-12.03	-14.77	-17	-22.48	-30.21
PBDT	225.92	155.03	123.42	61.3	48.5
Depreciation	-51.73	-31.02	-33.96	-23.56	-26.06
PBT	174.19	124.02	89.46	37.73	22.44
Tax	-60.61	-40.7	-30.94	-13.87	-0.43
Net Profit	113.58	83.31	58.59	23.87	22.04
Equity	21.83	21.83	21.83	21.83	21.83
EPS	26.02	19.09	13.42	5.47	5.04
CEPS	37.87	26.19	21.2	10.87	11.02
OPM %	20.16	13.84	12.58	10.36	7.95
NPM %	9.62	6.79	5.25	2.95	2.23
Dividend(Rs)	0	0	3	2	1.5

 Investment Positives:

1. Consistent profit making  company
2. Net profit growth of 36% in year FY 15-16 over FY14-15 is excellent.
3. Improvement in NP Margins over last 5 years is exceptional
4. Book value of Rs 135 (as on 31-3-2015).Price /Book>>1.4
5. High Promoter stake with market cap of only 825 cr against annual turnover of  1180 cr(15-16)
6. Company aspires to get into defence sector which looks promising.
7.  The change in the product mix supported by improvement in operational efficiencies and benefits derived from cost reduction enabled the Company to achieve better results.
8. Top line has remained flat for last 3 years due to sluggish economy but company has done very well in improving operational efficiency which resulted in almost 100% increase in net profit in last 3 years which is the biggest PLUS. 

Target price:  Share is available at CMP of Rs 185-187 at current PE multiple of 7 .Strong promoter and equity stake augurs well for the stock .Indian economy is set for decent growth in next 2 years this would surely help Kalyani Steels to improve top line which would improve the profitability and stock price can see a major increase from current levels. Also if it gets into defence sector it could get rerated and could enjoy very high PE resulting in multi-bagger kind of returns. Stock can be bought by long term investors with 1-3 years horizon for 100% returns from current levels.

Disclosure: I am personally holding shares of the company.