ROHIT FERRO TECH LTD.

Valuechase
Rohit Ferro Tech September 16, 2007 Page 1 of 3
ROHIT FERRO TECH LTD.
CMP- Rs.48.75
THE COMPANY / THE INDUSTRY
Rohit Ferro-Tech Limited is engaged in the manufacturing of High Carbon Ferro
Chrome, Ferro Manganese and Silico Manganese through Submerged Arc
Furnace route.
Around 90% of the High Carbon Ferro Chrome produced is used in the making of
Stainless Steel, where chromium is the unique ingredient, making the stainless
steel – the “stainless”, the alloying element that allows its remarkable corrosion
and oxidation resistance. There is no substitute for chromium for stainless steel
production and therefore with the growth in Stainless Steel consumption spurred
by China and upsurge in industrial activity in India especially in the construction
sector, automobile industry and consumer durables industry would ensure a
healthy demand for High Carbon Ferro Chrome.
CAPACITY EXPANSION
The Company raised Rs.50.84 crores with Public Issue in 2006 to fund
installation of 4 furnaces of 16.5 MVA each at Jajpur, Orissa. The location of
Jajpur plant with proximity to largest Chrome Ore deposits in India and Sea Port
will give an added advantage in terms of savings in logistics, and thus increase
its competitiveness.
The Jajpur (Orissa) project of the Company has been completed smoothly and
the unit has started production from Dec 2006. Its other unit at Bishnupur ran at
full capacity. This plant added fourth furnace of 9MVA from Feb07.
Currently two out of the four furnaces are operating. The other two furnaces are
awaiting power supply form the utility to start its production, which is expected
to be received soon as per Directors’ report.
The Company has announced addition of another 9MVA furnace (fifth) at
Bishnupur, to be funded through Bank Loan and Internal Accruals. The same
would add another 15,000 MTPA to Bishnupur Plant’s capacity. As per
management estimates, the fifth furnace should be operational from the end of
the year.
After completion of the fifth furnace in Bishnupur, the total combined
capacity of the Company would be 180000MTPA with furnace capacity of
111MVA and the Company would be the largest merchant producer of
High Carbon Ferro Chrome in India.
Valuechase
Rohit Ferro Tech September 16, 2007 Page 2 of 3
FINANCIALS
The latest annual and quarterly results for the Company are as under:
In Mn. Rs.
Particulars Quarterly Yearly
Jun'07 Jun'06 Change Mar'07 Mar'06 Change
Net Sales 1000.07 335.9 297.73% 1991.69 1274.01 156.33%
Other Income 16.28 10.12 44.7 197.33
Total Income 1016.35 346.02 293.73% 2036.38 1471.34 138.40%
Expenditure -859.46 -292.97 -1709.88 -1151.32
Operating Profit 156.89 53.05 295.74% 326.5 320.03 102.02%
Interest -41.86 -11.59 -74.54 -34.62
Gross Profit 115.02 41.46 277.42% 251.96 285.4 88.28%
Depreciation -13.64 -4.01 -23.36 -15.57
Profit before Tax 101.38 37.45 270.71% 228.61 269.83 84.72%
Tax -6.51 -1.48 -24.23 -7.4
Profit after Tax 94.87 35.97 204.37 262.43
Extraordinary Items 0 0 -12.19 -152.01
Net Profit 94.87 35.97 263.75% 192.18 110.42 174.04%
Equity Capital 344.63 344.63 344.63 175.15
EPS 2.75 1.04 264.42% 6.61 6.35 104.09%
Even if one assumes a full tax rate of 34%, the Profit after Tax would come to
62.61 mn Rs., resulting in EPS of 1.82Rs.
RISK MITIGATION
To deal with volatility in the market of High Carbon Ferro Chrome, the Company
is also capable of production of other bulk Ferro Alloys like Silico Manganese and
Ferro Manganese where are relatively stable in nature. All the furnaces of the
Company are designed to take care of such eventuality and to take up any
challenges in the changing market scenario.
In the normal course of business, this industry is exposed to two major risks:
1) Raw material prices: The risk of raw material prices is not as high since any
increase in raw material prices can be passed on to the customers. The Company
has applied for mining lease for Chromite Ore, which once allotted, should not
only mitigate the risk of increase in raw material price but also lead to savings in
Raw material costs.
2) Power. To ensure bulk and uninterrupted power supply at its plants, the
Company has also entered in long term agreements with WBSEB and NESCO at
very competitive rates.
Valuechase
Rohit Ferro Tech September 16, 2007 Page 3 of 3
VALUATION
The details on the installed capacity and production by the Company are as
under:
Particulars 2006-07 2005-06 Change
Installed Capacity (MT) 101525* 36400 278.91%
Production (MT) 51547 39439 130.70%
Since most of the new capacities have come in the last few months of the
financial year 2006-07, the full impact of the expanded capacity would be visible
in the year 2007-08 as borne out by its first quarter results. (See above)
In fact as per the Director’s Report, the capacity of approx 55000MT is also
ready and awaiting power supply.
We expect the following numbers for next 2 years:
2007-08 2008-09
Installed Capacity 165000MT 180000MT
Production 101525MT 155000MT
Net Sales 4000 mn 6000 mn
Net Profit 400 mn 600 mn
EPS 11.60 17.41
PE 4.20 2.80
The risk to our assumption would be inadequacy of demand to cough up
additional capacity or the steep decline in its operating margins or equity
dilution. At PE of Rs.2.80 for FY09 earnings, we expect Rohit Ferro Tech
to double from here in a year’s time frame.
DISCLAIMER
This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a
security. While the information contained herein has been obtained from the sources believed to be reliable, investors are advised to
satisfy themselves before making any investment decision. Valuechase does not bear any responsibility for the authentication of the
information contained in the report and consequently, is not liable for any decision on the basis of the same.
Valuechase and / or author may have positions in the security mentioned herein and may make purchase or sale therein while the
report is in circulation.
We invite readers to send valuable comments, feedback, stock and subscription queries at
valuechase@gmail.com

Research Report - BOC India

Valuechase

Short term Opportunity – BOC India November 5, 2006

1

Short term Opportunity - BOC India

On 4th September 2006, Linde AG, Germany completed the acquisition of ownership of The BOC

Group plc, UK. BOC Group, UK which owns 54.8% stake in BOC India Limited.

To our understanding, as per Indian Takeover code, Linde AG (acquirer) is required to make an

open offer to the minority shareholders of BOC India to the extent of 20% of all outstanding

shares by 3rd December 2006 (i.e., 3 months from the date of completion of acquisition of BOC

UK).

As per Regulation 20, the offer price should not be less than higher of 1) the average of the

weekly high and low of the closing prices of the shares of the target company as quoted on the

stock exchange where the shares of the company are most frequently traded during the twenty

six weeks; 2) the average of the daily high and low of the prices of the shares as quoted on the

stock exchange where the shares of the company are most frequently traded during the two

weeks preceding the date of public announcement. According to our estimate, this price would

be in the range of Rs.184/- based on last 2 weeks average price.

In these circumstances, Linde has two choices:

1) Lie low and let the offer fail by offering the minimum price as per SEBI formula, i.e.,

around Rs.184. In which case, since the offer price will not be at decent premium to the

current market price, the quantity offered would be negligible. Linde will not have to

incur any additional cost whatsoever except the compliance costs.

2) Consolidate its holding in BOC India by making an open offer at a premium. The

options here could be multiple depending on the quantum of money Linde is prepared to

shell out.

Though its difficult to ascertain what course of action Linde would take, however after looking

at growth opportunities in BOC India and its performance over the years (covered in the

following pages), we believe that Linde may want to further consolidate its holdings in BOC

India. Further, since its current holding is already 54.8%, it can’t acquire any further stake

through creeping acquisition route either.

In any case, Linde’s acquisition cost for BOC, UK is about USD 18 billion. However, it can own

BOC India for USD 90 – 120 millions considering various offer prices ranging from Rs.184 –

Rs.250-, which is really a fraction of the price, it has paid to acquire its parent company. The

fact that BOC India is growing at a fast rate and have been selling non-core real estate and is a

steady operation, may lead to Linde deciding to make an open offer for the full balance 45.2%

stake.

However, in such case the reverse book building regulations would be attracted. Reverse Book

building process have normally resulted into higher prices to investors since they decide at what

price they would like to tender their shares.

From an investor’s point of view, in case Linde chooses option 1, they may not make any

money but the downward risk is limited since BOC India is a good company (Company details in

following paragraphs) and the investors will be able to sell the shares in the open market

Valuechase

Short term Opportunity – BOC India November 5, 2006

2

without incurring any losses. In any case, the Current Market price is lower than the minimum

price to be offered under SEBI Regulation.

In case Linde decides with Option 2, the gains are bound to follow.

The acceptance ratio is likely to be 50% assuming that about 5% of the investors would not be

participating due to reasons of ignorance, not liking the price, etc.

Offer Price Scenarios

Offer Price No. of Shares 184 200 225 250

Acquisition cost @ 175- 100 17500 17500 17500 17500

Acceptance 50% 50 9200 10000 11250 12500

Cost of remaining shares 50 8300 7500 6250 5000

Cost of remaining shares / share 166 150 125 100

We believe that current market price does not factor in the impending open offer and that’s the

reason that BOC’s price has touch a low of Rs.174- after touching a high of Rs.198- on 30th

October 2006 itself.

In any case, depending on the offer price, the investors can decide to exit. We expect the price

of shoot up as soon as the offer is announced and if the offer price is not high, the investors

can exit the stock at that moment itself.

What makes BOC a safe bet at this high levels of sensex is that it is news driven story and is

unlikely to be affected by sensex movement and maximum period of investment would be 1

month.

The Company

BOC India started operations in India in 1935 as the Indian Oxygen and Acetylene Company. It

has since evolved into a subsidiary of the BOC Group, bringing the best international technology

and safety standards, while catering to the needs of a wide variety of industries.

More than 20 production facilities, including one of Asia's largest air separation units; 40

warehouses and depots; 100 dealers; more than 100 dedicated tankers in the distribution fleet;

- all this and more give BOC a geographic reach, which puts it close to its customers in any part

of India.

It supplies more than 20,000 gases and mixtures - that make steel plants more efficient, help

conserve our environment, preserve food, help hospitals to sustain lives and in general make its

customers more productive.

It has four focused business areas:

• Industrial gases

• Medical gases

• Special gases

• Projects

Valuechase

Short term Opportunity – BOC India November 5, 2006

3

Strong financials

During 2005-06, BOC registered its highest ever turnover of Rs.560.93 crores, a 32% increase

over the previous year. Its profits before tax and extraordinary items also went up by 77% to

Rs.80.92 crores. Even without considering profit on sale of immoveable property at Bangalore,

BOC’s profit after tax stood at Rs.37.68 crores.

BOC’s Sales and PAT have grown at a CAGR of 22% and 69% respectively over last 3 years.

Rs. in Millions

Year Mar-06 Mar-05 Mar-04 Mar-03 CAGR

Gross Sales 5609.3 4243.6 3471.8 3222.7 20%

Excise Duty -387.4 -396.5 -342.1 -325.4

Net Sales 5221.9 3847.1 3129.7 2897.3 22%

Other Income 134.5 30.9 40.4 47.7

Total Income 5356.4 3878 3170.1 2945

Expenditure -4262.6 -3139.7 -2648.5 -2459.8

Operating Profit 1093.8 738.3 521.6 485.2

Interest -36.6 -39.6 -95.2 -139.6

Gross Profit 1057.2 698.7 426.4 345.6

Depreciation -248 -242.9 -225 -231

Profit before Tax 809.2 455.8 201.4 114.6 92%

Tax* -432.4 -195.6 -144 -36.5

Profit after Tax 376.8 260.2 57.4 78.1 69%

Extraordinary Items 409.5 19.5 235.5 85.2 69%

Net Profit 786.3 279.7 292.9 163.3 69%

Equity Capital 490.8 490.8 490.8 490.8

Reserves 2493.2 1874.9 1742.4 1502.4

EPS 16.02 5.7 5.97 3.33

* Higher tax charge of Rs.432.4 millions during the year 2005-06 is due to movement to normal

rates of tax from Minimum Alternate Tax regime for past several years.

For first half of 2006-07, BOC’s profit after tax without considering exceptional items is

Rs.16.05 crores against the profit of Rs.5.76 crores in the previous year same period

representing a growth of 178%.

Encashing non-core real estate

During the year 2005-06, BOC sold its immovable properties at Bangalore realizing a profit of

Rs.47.46 crores on the same.

Even during current year, BOC made a profit of Rs. 2429 lakhs from the sale of the Company’s

immovable property at Tondiarpet, Chennai.

The surplus cash generated from the above is being used for funding the expansion.

Valuechase

Expanding continuously

During the year 2005-06, BOC commissioned a 65 TPD merchant Air Separation Unit in Medak

near Hyderabad to meet the demand in Southern India. It also commissioned a state-of-the-art

modern liquid compression facility at a new site near Chennai. It also completed installation and

commissioning of 1260 tpd plant at Dolvi.

It also launched new products i.e., Fire suppressants and refrigerant gases, which were well

received in the target markets.

During quarter 1 of 2006-07, BOC has signed another long term contract with JSW Steel Ltd.

for supply of gases to meet their additional demand arising from the expansion of their steel

making capacity at Bellary. For this purpose, the Company is in the process of setting up an

1800 tonnes per day plant, to be commissioned in 2008.

On 30 September 2006, Bellary Oxygen Company Private Limited, in which BOC holds 50% of

the paid up share capital, commissioned its 855 tonnes per day Air Separation Unit at Bellary for

supply of gases to JSW Steel Limited as per the long term gas supply contract entered into in

this regard.

During quarter 2 of 2006-07, BOC also commissioned a state of the art liquid compression

facility at a greenfield site at Pune as well as a special gases manufacturing facility at a new site

at Taloja.

With fresh capacity build up in the Steel and Petrochemical industries, BOC’s growth

prospects look promising.

DISCLAIMER

This report has been prepared solely for information purposes and does not constitute a solicitation to any person to

buy or sell a security. While the information contained herein has been obtained from the sources believed to be

reliable, readers are advised to satisfy themselves before making any investment decision. Valuechase does not bear

any responsibility for the authentication of the information contained in the report and consequently, is not liable for

any decision made on the basis of the same.

Valuechase and / or authors and their family members may have positions in the security mentioned herein and may

make purchase or sale therein while the report is in circulation.

We invite readers to send valuable comments, feedback, stock and subscription queries at

valuechase@rediffmail.com

Valuechase is an Equity Research cum Personal finance advisory that in addition to

bringing out its research reports, also provides services in the area of Portfolio advice,

customised Investment research and Personal Finance Health Check and advice. Please

write to us in case you would like to know more about our services

Free Research Report

Valuechase

Update - GIC Housing Finance October 13, 2006

1

Update - GIC Housing Finance

BUY

Industry Housing Finance

52Wk High/Low Rs.59.80 / 31.40

Equity Rs.53.85 crores

CMP (Face Value) Rs.46.75 (Rs.10)

Market Cap. Rs.252 crores

Book Value Rs.47.22

Last Dividend

15% Div. Yield 3.21%

Report sent to subscribers on

IN NUT SHELL

From our recommendation in last year in Sep 2005, GIC Housing Finance (GICHF) has not really gone

up due to equity dilution by 100% and low growth in Loan approvals and sanctions during 05-06.

However, we have reasons to believe that the growth story in GIC is still intact for the following reasons.

Continued Positive outlook for Housing finance industry

Beaten our Earning projections - 86% growth in profits in 2005-06, 40% growth in q1. Growth

momentum to continue

Continued Focus on NPA bearing results – NPAs down from 5.9% to 2.97% - a decline of almost

50% in percentage terms

Still among Cheapest Housing Finance Stocks.

Cost of Borrowings maintained at low level of 6.42% (6.25%)

Still offering a good dividend yield of more than 3%

Promoters have raised stake

Valuechase

Update - GIC Housing Finance October 13, 2006

2

INVESTMENT RATIONALE

Promising Industry Outlook

_ Future outlook for Housing Finance sector continues to be highly promising. According to the

National Building Organisation (NBO), the total housing shortfall is estimated to be 19.4 million

units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. Such

shortage will ensure the boom for housing sector in general and therefore in for the housing finance

sector.

The share of housing mortgages in India is just at 2-3% of GDP as compared to above 6% of GDP in

case of China, reflecting a huge scope for growth of housing finance sector in India. In addition,

relaxation in entry norms for 100% FDI through automatic route in construction and development of

mega housing projects by the Government is likely to further boost the growth of housing sector and

therefore housing finance sector.

The growing affluence of the middle class has acted as a great impetus for housing projects taking off

in a big way. There is a wave of consumerism fuelling the onset of retail boom and therefore retail

sector will offer growth opportunities for Housing Finance Companies.

Income tax sops for interest on Housing loans and repayment of housing loans have helped people

achieve two purposes simultaneously, i.e., save taxes and build houses. Continuation of tax sops will

continue to draw people to Housing Finance companies in flock.

Profit Growth to continue

For the year 2005-06, GICHF saw a de-growth in its Loan approvals and disbursements by almost 60%

and 43% respectively as with its then net worth, it could not grow any more due to regulatory requirement

of maintaining Capital Adequacy ratio of 12% and its Debt-Equity Ratio going up to almost 11 times.

Despite the above, GICHF has surpassed our expectations and has reported an EPS of Rs.12.29

representing a growth of 86% in earnings year on year as against our projection of EPS of Rs.10.52.

In March 2006, GICHF made a Rights issue to its shareholders in the ratio of 1:1 at a price of Rs.40 per

share to overcome its Capital Adequacy requirements. The issue was successfully completed in April

2006.

For the Q1 of 2007, GICHF has reported a growth of record 40.5% in its profits from Rs.7.08 crores to

Rs.9.95 crores.

With the Capital Adequacy now well above prescribed levels and post-rights Debt-Equity ratio of 6.25

times, GICHF can easily grow its Loan book by additional Rs.500 crores, which would work out to 30%

growth in loanbook and will ensure sustained growth in earnings. The proceeds of Rights issue itself

should add Rs.10 crores to its profitability this year.

Continued focus on NPAs

GICHF increased its focus on recoveries from NPA accounts and provisions worth Rs.2.31 crores were

reversed / adjusted during 2005-06. Consequently, the allocation for provisioning for NPAs was much

lower at Rs.6.11 crores as against Rs.15.24 crores in previous year. Net NPAs of individual housing loans

is now 2.97% as against 5.90% in the previous year.

Valuechase

Update - GIC Housing Finance October 13, 2006

3

Still among Cheapest Housing Finance Stock

The valuation of GIC Housing Finance stock is also at a discount to that commanded by stocks of other

comparable housing finance companies such as Gruh Finance, Dewan Housing, Ganesh Housing as

reflected below, not to compare the same with biggies like HDFC and LIC Housing Finance.

Company PE Ratio Price to Book Value Ratio Div. Yield (%)

Can Fin Homes 3.8 0.62 4.75

GIC Housing 5.8 1.04 3.37

LIC Housing 6.4 1.02 3.73

Dewan Housing 7.6 1.64 3.06

Ganesh Housing 11.9 7.82 0

GRUH Finance 17.3 2.59 2.27

HDFC 26.4 7.87 1.43

From the above, only Can Fin Homes* is cheaper based on its Price to Book Value Ratio (PBV) and

higher Dividend Yield. As discussed above, GICHF has a scope to add to its loan book by 33% thus

leaving a great scope for earnings growth and therefore triggering a re-rating at par with Dewan Housing

and LIC Housing Finance, meaning a scope of appreciation to the extent of about 30% from current

levels.

Other Relevant points

Cost of borrowing has been kept under check. While the interest costs have generally gone up in the

last year, GICHF has managed to control its borrowing costs at 6.42% (6.25% - 2005-06).

GICHF has maintained a dividend of 15% for FY 2006 also despite its capital has doubled due t

Rights Issue. At price of Rs.46.75, the stock offers attractive dividend yield of about 3.21 per cent.

It has a consistent record of dividend paying for more than 10 years.

The good fact about GICHF is that it has a Dividend Payout ratio of 25%.

_ The company has changed its strategy to focus only to the retail sector to maximize returns and

minimising risks. It may be noted that borrowings to retail sector command higher interest spread and

lower default rates as compared to corporate sector. Not just that, the company is focussing on the

semi-urban and rural areas, which should help it sustain the pace of growth.

There has been an increase in Promoters stake in the Company from 42.04% in March 2006 to

50.94% as at 30th June 2006. It is understood that the promoters have subscribed for the additional

shares in the recently concluded in the Rights issue for the unsubscribed portion of the issue.

Increasing the stake by 8.9% on expanded capital means an additional investment of approximately

Rs.19 crores in addition to their normal share of Rs.44.88 crores. Raising of stake by Promoters

indicate their continued belief in the Company’s earnings potential.

In the recently held AGM, the shareholders have approved raising of further sums to the extent of

Rs.350 crores through FCCB / GDR / Rights / Public issue. Any further dilution of equity would

affect the share price.

Valuechase

We expect GIC Housing Finance to give returns of approximately 30% from

current levels in a time span of next 6-12 months.

* Please write to us at valuechase@rediffmail.com for

our research report on Can Fin Homes and

previous research report on GIC Housing Finance Limited.

DISCLAIMER

This report has been prepared solely for information purposes and does not constitute a solicitation to any person to buy or sell a

security. While the information contained herein has been obtained from the sources believed to be reliable, investors are advised

to satisfy themselves before making any investment decision. Valuechase does not bear any responsibility for the authentication

of the information contained in the report and consequently, is not liable for any decision on the basis of the same.

Valuechase and / or author may have positions in the security mentioned herein and may make purchase or sale therein while the

report is in circulation.

We invite readers to send valuable comments, feedback, stock and subscription queries at valuechase@rediffmail.com

Valuechase is an Equity Research cum Personal Finance advisory that in addition to bringing out its

research reports, also provides services in the area of Portfolio advice, customised Investment research

and Personal Finance Health Check. Please write to us in case you would like to know more about our

services.

Easy and Simple Tips

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by: Robert Michael

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