Vbc ferro a mutibagger in making

Rationale

Vbc ferro (VBC) is a Hyderebad based ferro alloy manufacturing company,

Equity Rs4.10cr.

This company is having investments of Rs 150cr in KONASEEMA GAS POWER LTD ( KSGPL) is a gas based power plant coming up near Rajahmundry AP, KSGPL putting up a gas based power plant with a capital cost of Rs1500cr with a capacity of 460 mw ready for commercial production, due to non availability of gas company doesn't started commercial production, as all r aware RELIANCE INDUSTRIES struck with huge gas reserves in Krishna Godavari basin near to this power plant.



In another 3to 6months RELIANCE will be able to supply gas to this company; KSGPL already signed mou with AP TRANCO for supply of entire production for 15 years.


Now KSGPL is planning to set up another 820 mw gas base power plant in AP with a capital outlay of Rs2800cr. Power finance corporation is sanctioned a term loan of rs 1000cr and other institutions also participating in this project. To complete this project funds requirement KGPCL is contemplating a public issue at RS 100- 110 per share in first qtr of 2009

Vbc ferro alloys is holding 15,00,00,000 shares in KGPCL with an investment of RS 150cr. If KGPCL comes out with a IPO at rs 110 value of investments held Vbc ferro per share becomes (market value will become rs1650cr divided by 41laks shares) RS 4024.

Plus vbc ferro is holding investments in ORISSA POWER CONSORTIOM LTD WHICH HOLDS LICENCE FOR 120WM HYDEL POWER PROJECTS

Plus ferro alloys business

Note on VBC Ferro Alloys Limited (VBCFAL)

1.	VBCFAL manufactures Ferro Manganese and Silico Manganese which are used in steel industry.
2.	VBCFAL is having a manufacturing facility at Rudraram village which is 40 km away from Hyderabad.
3.	The installed capacities are: Ferro Silicon 10000 MTPA, Ferro Chrome 31500 MTPA and Ferro/Silico Manganese 27000 MTPA.
4.	For the year ended March 2007, VBCFAL has achieved a Sales of Rs.72.60 crores. Net Profit Rs.3.71 crores, Equity is Rs.4.19 crores. Reserves & Surplus is Rs.134.46 crores. Book value per share is Rs.320.57 (Face Value Rs.10/-).
5.	VBCFAL holding mining rights for 60 acres quartz mines in Andhra Pradesh.
6.	VBCFAL recently got 300 acres of Manganese Ore mines rights in Andhra Pradesh which is now in scarcity. These captive mines will be operational within next 2-3 quarters. Due to availability of captive manganese ore, the company's cost of production is likely to go down by 25% - 30%.
7.	Zero debt company ( No Term Loans)
8.	VBCFAL is sitting on huge investments. It has invested in Konaseema Gas Power Ltd., (KGPL) a VBC group company, which has already implemented a 445 MW Natural Gas Based Power Project Phase-I with a capital cost to the tune of Rs.1700 crores, located near Krishna-Godavari Basin (KG Basin).
9.	VBCFAL invested Rs.134.31 crores in KGPL (13,43,05,000 shares) which is roughly around 30% of KGPL's equity. VBCFAL value of investment in KGPL will appreciate considerably on commencement of commercial production.
10.	VBCFAL invested Rs.6.16 crores in another group company – Orissa Power Consortium Ltd., (OPCL), which holds license to produce 100 MW (5 x 20 MW) Hydel Power in Orissa by December 2007. OPCL goes for production for 20 MW and the balance 80 MW will be commercialized in 2008 calendar year.
11.	Availability of cheaper power is very crucial for Ferro Alloys industry. To improve profitability, VBC is implementing a pit head coal based captive power plant through another group company viz., Karthik Rukmini Alloys & Energy Ltd., (KRAEL). KRAEL is setting up a 65 MW power plant at Kagaznagar (A.P). KRAEL got coal linkage from government. The KRAEL is expected to be operational in another 12 to 15 months.
12.	Total Fund requirement for VBCFAL Ø Intent to invest Rs.45 crores in KGPL Phase-II Ø Rs.10 crores for operationalization of captive Manganese Ore Mines. Ø Rs.18 crores for investments in KRAEL equity (Captive Power company).

KONASEEMA GAS POWER LTD., - PHASE-I

1.	Generators, Gas Turbine and Steam Turbine for 445 MW Power Plant have been supplied by Siemens/LMZ Energy Ltd. EPC contract by L&T and LMZ consortium. O&M by NTPC and gas will be supplied by GAIL (India) Ltd.,
2.	In Phase-I of KGPL, Equity contributed by L&T 5.06%; IDBI 5%; LIC 4.82%; IL&FS 6.75%; GIC 4.82%; ELGI grop 9.55% and AMP Capital of Australia 8.89% and the balance by VBC group of companies.
3.	KGPL plant is ready for commercial production by February 2006. However, due to non-availability of gas from GAIL, the company could not start its commercial operations.

KONASEEMA GAS POWER LTD., - PHASE-II

1.	KGPL is implementing 820 MW Natural Gas based power project to take advantage of infrastructure which is already in place. The capital cost of Rs.2800 crores with Debt Equity ratio of 80:20 has been appraised by Power Finance Corporation Ltd., (PFC) which has funded a term loan of Rs.750 crores. Rural Electrification Corporation Ltd., has sanctioned another Rs.750 crores. India Infrastructure Finance Corporation has sanctioned Rs.300 crores. Andhra Bank, Axis Bank, Union Bank of India are other lenders to this expansion project.
2.	KGPL has entered into an agreement with Reliance Industries Ltd., (RIL) for supply of natural gas for Phase-II. Plant & Machinery is being supplied by Siemens and EPC contract by L&T and O&M by NTPC.
3.	Phase-II will be operational within 24 months from the date of financial closure and the financial closure is expected by December 2007. KGPL will be able to reap economies of scale & low overhead cost distribution which will result more profits as combined entity.

VBC Ferro Alloys Ltd., is a small equity based company having huge investments in Power Sector and going into backward integration of Captive Power and Captive Mines. In the next few quarters with this backward integration plan, VBCFAL will be benefited enormously in its core business i.e., Ferro Alloys.

Vbc ferro investment argument

Vbc ferro invested around Rs 130cr in konaseema gas power ltd(kgpl) which already implemented 445 gas based power plant (phase 1) in Andhra Pradesh. And in the process of implementing another 820 mw gas power plant (phase 2)at the same site to reap benefit from existing infrastructure available.

Konaseema gas power is in the process of raising Rs 500cr by way private equity from reputed institutions at Rs 50 per share, announcement expected by April 08

If calculate vbc ferro investments based on par with PE players available at dirt cheap valuation. now vbc ferro share price is at Rs 150 market cap is Rs 66 cr ,book value of investments in konseema alone Rs 130cr ,if u buy vbc ferro share at 150 ,value of konaseema works out to Rs 5.whrere as big PE player is picking up at Rs 50 ten times current price of vbc Ferro. If u take a discount as 50% to placement price vbc ferro should quote at Rs 750.

Konaseema gas phase 1 is expected to go for production in august as per original PPA signed with ap Transco total production should sold to ap tranco, but due delay in supply of gas by Gail ap govt has given a concession to sell 20%of production as merchant sale, now konaseema has sold 90 mw to Karnataka electricity board at rs 3.65 paisa as against rs2.10 to ap Transco. Hence kgpl will make money from day one.

Kgpl in process of registering with unfcc for carbon credits, on a conservative estimate rs 100 cr will come from corbon credit sales on 1250 mw production.

In 2008-2009 kgpl will come out with an ipo at rate less than rs 100 per share will further boost market price of vbc ferro.