Thursday, March 3, 2011

Foseco India ltd- Casting a spell !

Foseco India ltd
Business Segment: Metallurgical Chemicals
Installed capacity: 29627 tonnes
Year of operation : 55th year
Product portfolio : over  400 complex  products comprises resins, coatings, feeding systems, ferrous  and non-ferrous metal treatment products and greensand additives.

Market share : approximately 23%

Manufacturing plants : Two- Sanaswadi,  Pune  and  Puducherry-both  are  accredited   to   the international IS014001:2004, environmental management ISO9001:2008, quality standards and OHSAS 18001:2007.
Number of employees: 195
Foseco worldwide , has been associated with the metals Industry for over 75 years  and is acknowledged as a world leader in the supply of consumable products  for use  in  the  foundry  industry with presence in  32  countries  and  major facilities  in  Germany,  USA, UK, Brazil, China, India,  South  Korea  and
Promoters :Foseco is a part of the Ceramics Division (Vesuvius) of Cookson Group  plc, UK which owns 75% stake in the company
Business snapshot:
Foundries form the heart of any manufacturing based economy. 
The  business  of  Foseco  India Limited is concentrated on the Indian foundry sector. 
It is acknowledged as the  only company in the country that possesses the capability of  offering the  widest  range  of  solutions for  producing  casting  of  the  highest standards  in  terms of quality, surface finish, soundness,  integrity  and dimensional  tolerance.  Its  focus is on  adding  economic  value  through improved  process  capability,  casting  yield,  resource  utilization  and efficiency  and  development of new business  opportunities. 
What do Foundry additives do ?
Foseco manufactures products for steel and foundry industry which are used as additives  and consumables in the form of granulated flux, alloy additions, and granulated fluxes which improve the physical properties and surface qualities of castings. These help to reduce the cost of melting, moulding and casting for various ferrous and non ferrous metals.
Foundries  typically  produce  castings that go  into  different  end  user segments.  These  segments  can  be  broadly  classified  into  automotive, construction,  heavy machinery, general engineering and mining.  There  are more  than  5,000 foundry units in India, having an installed  capacity  of
approximately  7.5 million tones per annum, the majority of  which  (nearly 95%) fall under small-scale industry category. In terms of production,  the Indian  foundry industry is the sixth largest in the world after  the  USA,China,  Japan, Russia and Germany, whilst in terms of the number of  people
employed  and production units, India is the second largest player  in  thefoundry industry after China.
Foseco’s performance is directly linked to the the industry growth, in terms of  overall  casting tonnages.

An example of how Foseco products add value:

One such product from the Foseco stable is "Turbostop", which is a specially designed and engineered "Contoured Impact Pad" (CIP). Till the invention of "Turbostop" the normal process in casting of steel was that molten steel would flow from a ladle and hit a flat impact pad kept at the bottom base of the vessel known as Tundish. The flow of steel after hitting the impact pad was not susceptible to control, this affected the time upto which the molten steel could be retained in the Tundish. Unless the molten steel could be retained for an ideal time - the non-metallic inclusions would not float and would not be capable of removal, resulting in poor quality steel. With Turbostop this difficulty is overcome

Foseco is an investors dream stock in terms of dividend payout. The 6 year dividend record is as follows:
2005 : Rs.17 ( EPS : Rs.19.19)
2006 : Rs.18 ( EPS : Rs.22.96)
2007: Rs.17 ( Rs.28.37)
2008: Rs9.50 ( Rs.22.86)
2009: Rs.9 ( Rs.18.04)
2010: Rs.17 ( Rs.30)
An increase in gross block in 2008 & 2009 saw dividend payout ratio reduced to about 40% as the company expanded capacity. The overall performance in those years was also affected by the overall economic slowdown.
Paid up Equity capital: Rs.6.39 cr
Debt : Rs.11 .05 cr
Revenue : 188 cr ( 2009: 127 cr)
PBT : 29 cr ( 2009: 19 cr)
PAT: 19.3 cr (2009: 12.5 cr)
EPS : Rs.30 ( 2009: Rs.19.5)
The company is currently operating at about 70% of its installed capacity  of 29627 tonnes and hence there does not seem any immediate need ( at least for the next 2 years)
Performance for Year ended Dec 2010:
Revenues : 188 cr
PBT : 28.98 cr
PAT : 19.29 cr
EPS : Rs.30
At the current price of Rs.450, the company trades at a PE of 15 times 2010 earnings.
With India emerging as  manufacturing hub for a host of industries , overall casting tonnages are likely to see growth . Foseco with its competitive technological advantage, good dividend payout, and shareholder friendly management could be considered as a good long term investment on dips.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

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