Bihar Sponge Iron Ltd Sector Industry

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Jeffery Singleton
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1 Page 1 of 5 Company Profile Bihar Sponge Iron Ltd is the first merchant sponge iron plant in India. The company produces Direct Reduce Iron (or sponge iron as popularly known) from indigenous iron ore and non-coking coal available abundantly in the area. Stock Price Price in Rs. Last Close Price 3.05 (08/01/2016) 52 Wk High/Low 3.34/0.01 Market Cap (Cr.) (31/12/2015) vg. Volume (1 Mo) (Rescaled to 100 for ease of comparison) The company was established in the year 1982 and its registered office is situated at Umesh Nagar, Chandil, District, Saraikela Kharsawan, Jharkhand. The company commenced its commercial production on July 1, The company was promoted in the joint sector by Bihar State Industrial Development Corporation Limited (BSIDC), Modi Group, German Investment and Development Company (DEG) and International Finance Corporation (Washington) in technical collaboration with Lurgi Metallurgy GmbH, Germany. The company, at the year ended March 31, 2015 had about 509 employees. Its key management includes Mr. Umesh Kumar Modi as the founder promoter and Chairman. The promoter shareholding as on 31st March 2015 stood at 69.3% while the remaining shareholding was largely held by non- institutional non-promoter shareholding. Business Overview Bihar Sponge Iron Ltd is engaged in manufacturing and selling of sponge iron. It produces sponge iron from three kilns with an installed capacity of 2,10,000 metric tonnes per annum. The company s primary product, sponge iron, is a high quality pre-reduced ferrous material and, therefore is preferred to most other materials in place of steel scrap by secondary steel producers operating induction and electric arc furnaces for producing long products for meeting the demand of the construction and infrastructure sectors. The principal cost components of sponge iron consist of coal, iron ore and capital service charges. Management expects reduction in the power cost of the company owing to commissioning of its captive 5.0 MW power plant. However, plant continues to remain closed owing to lack of coal supply linkage. The company expects to start producing iron from its iron ore mine in The operating environment remains challenging owing to low prices and low demand. Financials Revenue Gross Margin % Operating Income Operating Margin % Diluted EPS Book Value Per Share Operating Cash Flow Capital Expenditure Free Cash Flow Profitability Return on ssets % Return on Equity % sset Turnover Net Margin % Financial Leverage% Financial Health except Debt/Equity (Ratio) Long Term Debt Total Equity Debt/Equity Working Capital Report as of 11-Jan Initiative of the BSE Investors Protection Fund Morningstar. ll Rights Reserved. Please refer to the disclaimers on the last page of this report.

2 Page 2 of 5 Income Statement Total Revenue Cost of Revenue Gross Profit Operating Expense Operating Income Pre-tax Income Tax Provision Minority Interests Balance Sheet Stock Holders Equity Long Term Debt Total Non-Current Liabilities Payables Total Liabilities Net PPE Goodwill and other Intangible ssets Total Investments Total Non-current ssets Trading and Other Receivables Inventory Cash and Cash Equivalents Total ssets Cash Flows Depreciation and mortization Change in Working Capital Operating Cash Flow Capital Expenditure Investing Cash Flow Net Common Stock Issuance Net Issuance Payments of Debt Cash Dividends Paid Financing Cash Flow Changes in Cash Report as of 11-Jan Initiative of the BSE Investors Protection Fund Morningstar. ll Rights Reserved. Please refer to the disclaimers on the last page of this report.

3 Page 3 of 5 Financial Performance In FY 2015, revenue fell by 100% to nil versus the last year. This was owing to no production of sponge iron due to plant being shut from ugust 9, 2013 on cancellation of coal mine lease due to Supreme Court order. Operating loss reduced by 56% to INR 8.8 crores versus an year ago. The reduction in loss was largely due to no loss on selling sponge iron owing to no production and only fixed costs were being borne by the company. Net loss reduced by 58% to INR 7.4 crores versus the last year. t the end of FY 2015, the company had a negative net worth of about INR 77 crores. Revenue Growth Key Risks Risks include deterioration in global economic growth, sharp fluctuations in price of raw materials such as iron ore and coal, fall in price of long products, fluctuation in currencies, labour unrest, reduction in planned public spending on infrastructure and housing which could lower the economic activity and demand for company s product; slowdown in the consuming industries such as steel industry, slowdown in the infrastructure activity, change in the government or regulatory policy related to the industry and mine lease periods for the company. Gross Margin Competitors The company s two key competitors include Usha Martin Limited and Rathi Bars Limited. Usha Martin Limited is an integrated specialty steel and value added steel products company, having business locations across various parts of the world including through its subsidiaries and/or joint ventures. The company has state-of-art integrated steel plant near Jamshedpur producing a wide range of specialty steel wire rods and bars, with captive iron ore mine in Jharkhand. It is one of the largest producers of specialty steel in India. The company s revenue for FY 2015 was INR 456 crores, up 15% versus the last year. Rathi Bars Limited, a steel rolling mill, was set-up at lwar, Rajasthan with a view to meet the growing requirement of reinforcement steel bars for construction. The company is engaged in the manufacturing of reinforcement steel bars & low carbon billets. It comes with the strength of 2 state-of-the-art manufacturing plants in North India, with more in the pipeline, installed capacity of over 2.5 lakh metric tonnes per annum, global associations with Henigsdorfer Stahl Engineering GmbH, Germany. The total revenue was INR 236 crores in FY 2015, down 13% versus a year ago. Operating Margin Report as of 11-Jan Initiative of the BSE Investors Protection Fund Morningstar. ll Rights Reserved. Please refer to the disclaimers on the last page of this report.

4 Page 4 of 5 Industry Overview India is the world s largest producer of sponge iron with the sponge iron making capacity estimated at 46.2 million tonnes in Bulk of the capacity depends on coal as one of the primary raw materials. The industry is facing sluggish domestic demand, iron ore supply constraints, low sponge iron ore prices, and low demand from the steel industry owing to low steel prices and low capacity utilization levels. However, the long term demand for sponge iron remains strong. The Indian economic growth improved to 7.3% in financial year as compared to 6.9% in financial year International Monetary Fund (IMF) has pegged average 6% growth for Indian economy over the next five years. Steel industry is the primary consumer of sponge iron and Indian steel demand is expected to grow at 1.2 times the long term economic growth of the country. The planned government spending for creating more than 30 million new houses, infrastructure and USD120 billion capital expenditure in Indian Railways will accelerate steel demand in line with economic growth. Price/Earnings Trailing Returns Quarterly Results except EPS (Rs.) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Revenue Expenditure Interest PBDT Depreciation PBT Tax Net Profit Equity EPS *Standalone figures Report as of 11-Jan Initiative of the BSE Investors Protection Fund Morningstar. ll Rights Reserved. Please refer to the disclaimers on the last page of this report.

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