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India’s Balasore Alloys Ltd. wants to become one of the world’s most favored suppliers of ferro alloys, after it announced a plan to more than double its sales and raise profits about five times within the next three years. With about a third of its sales coming from outside of India and a customer-base spread over nearly three dozen countries, Balasore seems well on its way to becoming a major player in the global ferrochrome market.
By Karan Kumar – Exclusive to Chromium Investing News
India’s Balasore Alloys Ltd. (BSE:513142) wants to become one of the world’s most favored suppliers of ferroalloys, after it announced a plan to more than double its sales and raise profits about five times within the next three years. B. N. Panda, Orissa-based Balasore’s operations director, told Indian media recently that the company wants to increase its production to 174,128 metric tons in 2014-2015 from the current 86,534 metric tons. Panda said Balasore had worked out strategies to increase turnover to nearly 14.2 billion rupees ($219 million) from about $120 million currently.
Balasore, one of the leading manufacturer’s of ferrochrome in India, also said it plans to see profit after tax increasing to just about $60 million from the current level of $11.7 million, an increase of more than 400 percent. “Our vision is to make the company the most-favored supplier of quality ferro alloys globally, creating lasting value addition for all stakeholders,” the director said. Some of Balasore’s major customers include Sino Trust, Marubani, Mitsui, Globus, Toyota, SAIL, Mukund Steel and Mittal Corp.
With about a third of its sales coming from outside of India and a customer-base spread over nearly three dozen countries, a Mumbai-based analyst, who requested anonymity, said Balasore is well on its way to becoming a major player in the global ferrochrome market.
Balasore Alloys, incorporated in 1982, has five furnaces with a capacity to produce up to 95,000 metric tons of ferroalloys. The company says it has the flexibility to produce different types of ferroalloys as per market dynamics. Balasore has captive mines in different locations, such as chromite ore mines in Sukinda Valley, manganese ore mines in Hathoda in the Indian state of Madhya Pradesh, both of which take care of Balasore’s chrome production.
Balasore is one of the very few ferroalloys manufacturing companies in the country having captive mines and this is “a major competitive advantage since availability of chrome ore is very uncertain and the price is also exorbitant,” the company said.
The Mumbai-based analyst said ferrochrome constitutes more than 75 percent of Balasore’s sales, “a good sign considering India’s demand for steel is growing, driven by growth in construction, manufacturing and autos. I rate the stock a buy with a medium- to long-term target price of 28 rupees.”
Balasore’s shares closed at 14.2 rupees on February 3 and have traded between 8 rupees and 28 rupees in the past year. The shares have risen more than a third in 2012, partly because of Mr. Panda’s ambitious announcement in late December, the analyst said, adding that the vagaries of the global ferrochrome market could lead to tough times ahead for Balasore.
“There is still some oversupply globally in the ferrochrome market and that could hurt Balasore, considering it makes a third of its sales from abroad. Steel demand outlook remains strong for both India and China, but it is not as high as previously thought. The weak global economic situation and the euro crisis are still far from gone and will impact Balasore and others just as much.”
However, Balasore’s outlook looks stable, Fitch Ratings said in a January 24 statement. Fitch upgraded Balasore’s national long-term rating to BB- from B+. “The upgrades reflect Balasore’s improved performance in the first half of fiscal year 2011 and its adherence to the corporate debt restructuring package, which was approved in June 2009,” Fitch said.
Fitch said Balasore has immunity to raw material price volatility, given access to captive chrome ore mines, adding that its ratings on Balasore also “factor in (the company’s) diversified customer base in both domestic and international markets, which accounted for its capacity utilization levels of 85 percent to 90 percent over the last four years.”
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.