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Smallcap steel company

Sarda Energy & Minerals Limited (SEML) is the flagship company of Sarda Group and is engaged in the production of steel, ferro alloys and power.

Sarda Energy & Minerals

Current market price on the date of publishing this report-: 842 Rs

Introduction

Established in 1977 as Raipur Wires & Steel, company was promoted by the Tejpaul group, Bombay. The Sanda group purchased it in 1979 and renamed it Raipur Alloys & Steel in 1985. It produces sponge iron, for its captive use to convert it into rolled products for sale.

During 1997-98, the Indian Bureau of Mines, Government of India, granted the company a mining lease on 100 hectares in Dongarbor, Rajnandgaon district, M.P. In 1998-99, the Company applied for an additional 125 acre area for iron ore mining and expects to receive a Prospecting License in the near future. In 2001-02, it received an iron ore mining lease. In the near future, the company intends to significantly expand both sponge iron and steel production.

Sarda Energy & Minerals Limited (SEML), is the group’s flagship company. 

SEML is a low-cost steel producer (Sponge Iron, Billets, Ferro Alloys, Mining,Power,Pellets,Iron Ore,Wire Rod Mill, Eco Bricks) and one of India’s largest manufacturers and exporters of ferro alloys. The company, headquartered in Raipur, Chhattisgarh, merged with Chhattisgarh Electricity Company Limited (CECL) in 2007 with the goal of becoming a leading energy and minerals company.

Today it is a Vertically integrated steel producer with captive iron ore, listed on the BSE and NSE with Promoters holding 72.50%. Manufacturer and exporter of ferro alloys based on manganese. Waste heat and coal provide self-sufficient captive power. 

SPVs hold stakes in hydropower projects as well it is a TWO-STAR EXPORT HOUSE, as certified by the Ministry of Commerce and Industry of the Government of India.

Over the last three decades, the company has steadily expanded its product portfolio to include a wide range of customised value-added products. SEML is now the preferred supplier for many domestic and international customers in over 60 countries.

Business Products

Sarda Energy & Minerals Ltd. is a leading integrated steel producer that uses the direct reduction process to produce steel. SEML has an annual DRI capacity of 360,000 MT and a crude steel capacity of 240,000 MTPA. With an annual production capacity of 82,500 MT, SEML is also one of India’s largest exporters of ferro alloys. The captive iron ore mines give SEML a significant competitive advantage and ensure constant supply of critical inputs.

Company has pellet capacity of 8 lakh tons installed. 

Sponge Iron

SEML was one of the first companies to install a sponge iron plant in the Siltara, Raipur area Majority of the Sponge Iron produced at SEML is used for its own captive use to produce steel billets through induction furnace route. Its annual DRI production capacity stands at around 360,000 MT.

Billets

Billets are semi-finished steel products with a square cross section usually up to 160mm x 160mm. This product is continuously cast and is then transformed by rolling in rolling mill to obtain finished products like wire rod, merchant bars and other sections. Annual billet production capacity is around 320,000 MT.

Ferro Alloys

Ferro alloys are high-value-added products that are commonly used in the production of mild steel and special steel. SEML is a major producer and exporter of manganese-based ferro alloys, with shipments to over 60 countries. SEML has been designated a Star-Export House by the Government of India for its contribution to ferro alloys export. SEML was recently honoured by EEPC- (Engineering Export Promotion Council) with a Regional Export award in the category of star performer for fiscal year 2008-09. The ferro alloys division accounts for the majority of SEML’s top and bottom lines.

SEML’s Siltara, Raipur plant has a total installed capacity of 45 MVA. Because of improvements in operational efficiency, the installed capacity is being increased by 25% to 60 MVA.

Mining

The Company is determined to achieve 100% raw material self-sufficiency as part of its long-term strategic plan. Coal and iron ore are the two most important raw material inputs for the company. 

SEML has purchased two coal blocks through competitive bidding. One coal block with gross geological reserves of 239 million tonnes in Raigarh district, Chhattisgarh, with extractable reserves near 42 million tonnes and an allowed capacity of 1.2 million tonnes per year is operating. Another coal block with gross geological reserves of almost 38 million tonnes in Madhya Pradesh’s district Shahdol is set to begin operations in 2025, with total extractable reserves of nearly 10 million tonnes.

The Company operates one iron ore mine with a beneficiation plant in the district of Rajnandgaon, Gujarat, with mineable reserves of almost 7 million tonnes and an allowed capacity of 1 million tonnes per year.

To satisfy its raw material requirements, the company has focused on acquiring mining rights for iron ore, manganese ore, and coal.

Power

SEML takes pleasure in being one of the few firms that is completely self-sufficient in terms of energy. At the moment, our Siltara facility is running an 81.5 MW thermal power plant. The produced energy is used only in our sponge iron, billet, ingot, and ferro alloys factories.

installed 2x 100 KW solar power system in siltara to take first step to use of renewable solar energy in our plant premises and it is backing up power plant.

The 113-megawatt Sikkim Hydropower Project had commenced commercial operation on June 30th, 2021 

Pallets

SEML is one of the first few companies in the country to produce Pellets from Iron ore Fines using Grate-Kiln technology. Majority of the Pellets produced is used in house for production of DRI. The capacity of the Pellet Plant is 0.8 million tons per annum.

Financials

For the year ended March 2022 

  • On consolidated basis, company reported highest ever revenues and profits of ₹ 3,964 Crore and ₹ 807 Crore, respectively, registering a growth of 69% and 115%. 
  • Consolidated EBITDA strengthened by 112%, to ₹ 1,406 Crore while cash profits improved by 111%, to ₹ 950 Crore during the year. 
  • Company announced buyback of 8,11,108 equity shares for a consideration of ₹ 121.67 crore at ₹ 1,500/- per share and also rewarded our shareholders through an interim dividend payout of  Rs 7.50 per share for F.Y. 2021-22 

For Q1FY23

  • Net Sales stood at Rs 1,261.05 crore in June 2022 up 51.53% from Rs. 832.19 crore in June 2021.
  • Quarterly Net Profit stood at Rs. 169.80 crore in June 2022 up 1.04% from Rs. 168.06 crore in June 2021.
  • EBITDA stood at Rs. 330.62 crore in June 2022 up 22.64% from Rs. 269.58 crore in June 2021.
  • Sarda Energy EPS has increased to Rs. 48.19 in June 2022 from Rs. 46.62 in June 2021.

For Q2FY23

Results for Q2FY22 will be declared on 14th Nov. If you are highly risk averse you can wait till then before jumping on.

Capex

  • The 113 megawatt Sikkim Hydro Power project billed 132 million units. At generation bus level, the plant achieved a PLF of 58% in this quarter.
  • Gare Palma IV/7 Coal Mine, Chhattisgarh – Capacity expansion from 1.2 MMT p.a. to 1.68 MMT p.a. likely to be completed in FY23
  • Shahpur West Coal Mine, Madhya Pradesh – Extractable reserves of 13.4 MMT and Production capacity of 0.6 MMT p.a.; Work is in progress as per schedule;
  • Ferro Alloys plant at Vizag (Under SMAL) – Capacity expansion from 111 MVA to 147 MVA, estimated to commence operations in FY23.
  • 163 MW of Operational Green Power (143 MW of Hydro Power and 20 MW of Waste Heat Power) 
  • 24.9 MW of Hydro Power under execution
  • More details about Capex will be know after company announces q2 results next week. 

Managements comments

As per the management sales of the coal is concerned about 50% of present capacity 1.2 million tons is captively consumed, rest only will be available for sale. So, the sales will be somewhere in the range of 1.25 lakh tons per quarter to 1.5 lakh tons at the max. If the management gets the permission for increased capacity, then the sale may increase. 

Management is planning further reduction of debt upto 150 crs in the coming period.

This debt would be over and above that has been reduced in Q1FY23.

Sectorial outlook

Global steel production recorded growth of 8% quarter-on-quarter to 493 mn tons but fell year- on-year by 3.4%. India exported 2.88 million tons steel against 3.89 million tons in previous quarter, constituting 9.3% of production. The domestic consumption fell from 29 million tons to 27.35 million tons quarter-on-quarter. India continues to be the second largest producer of steel with 6.3% share in the global steel production. Japan with third ranking is far behind us. 

Ukraine may face some issues with Russia going forward. And like we have seen in the past that there were disruptions in the steel plant and one of the steel plants had to completely shut down because of the war situation there. One of the largest producers of ferro alloys in the world is situated in Ukraine. And if there are disruptions there in terms of logistics and in terms of operations and production, we might see a certain spurt in pricing of ferro alloys as well which can be big benefit for Indian companies.

Conclusion

Sarda Energy & Minerals Limited (SEML) is the main firm of the Sarda Group, producing steel, ferro alloys, and electricity. The company has announced a share buyback at a price of 1500 Rs per share, as well as a 7.5 Rs interim dividend per share. Aside from that, the firm has a large cash position that it intends to use to support capex as well as pursue organic possibilities. Furthermore, management has communicated its objectives to decrease debt by around 150 crores above and above q1 levels in FY23.

According to the management, the firm is protected from rising coal prices because the bulk of its demand is satisfied by its own coal supply. As a consequence, management expressed confidence in maintaining current levels of EBITA margins in the coming year. As a result of the current situation, low demand for steel from Europe, and export limitations imposed by the Indian government, this industry has been underperforming for quite some time. When commodity prices stabilise, we anticipate this sector and Sarda enery minerals to do exceptionally well. This firm is worth investigating in the long run.

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