Sunflag Iron and Steel Company Ltd - Special in Steel

Sunflag Iron and Steel Company Ltd is a flagship company of Sunflag group. Initially company was started for producing normal mild steel and spring steel rolled products since than company has been continuously upgrading its manufacturing facilities and products, presently it has transformed itself into high grade special alloy steel manufacturer.

CMP     47

The state of the art integrated steel plant is set up by Mannesmann Demag and Krupp Industrietechnik Germany, located near Nagpur, at Bhandara, Maharashtra. The plant has a capacity to produce 500,000 tonnes per annum of very high quality special steel using liquid pig iron and sponge iron as basic inputs. The company has technical collaboration with Daido Steel Co Japan. The company has captive coal, manganese and ore iron mines.  The steel plant is equipped with 30 MW captive power plant based on thermal and waste heat recovery.

Specialty steel is made by combining steel with different alloying elements to improve various mechanical and chemical properties such as resistance to heat, abrasions, rust etc. The automobile, defence and industrial machinery sectors are the primary users of specialty steel. The common grades include silico manganese, chrome and vanadium steel.

Sunflag Iron and Steel Business Film 

https://www.youtube.com/watch?v=5gWskCU8liA

Presently, the company produces wide variety of steels, tailor made to specific requirements of customers in various grades and profiles covering all categories like  carbon steels, alloy steels, free  & semi free cutting steels, micro-alloyed steels, stainless Steels, spring Steels, valve Steels, bearing Steels, cold  heading quality steels, tool steels, etc.

Sunflag mainly caters to the demand of the automobile, railways, defence, power, and engineering sectors. The steel used for manufacturing various components like crank shafts, springs, suspension mechanism, transmissions parts, axle beams, connecting rods, bolts, nuts, shafts, keys, critical machine components, steering components, axles, gears, and high resistance screws.

The manufacturing facilities of Sunflag Iron include sinter plant, mini blast furnace, direct reduction plant, electric arc furnace, ladle heating furnace, vacuum degassing unit, blooming mill, alloy steel mill and garret coiler amongst others.

The company is giving prime focus to maintain high quality product standards. The manufacturing and quality management systems has been standardized and certified under ISO 9001, TS 16949, ISO 14001, OHSAS 18001, AD-2000-Merkblatt WO certified & ISO/IEC 17025 approved testing laboratories by NABL. The Sunflag steel is produced using 100% Iron ore as a basic raw material input and no scrap steel is sourced from outside.

Clients

The company has established itself as a major producer and reliable supplier of alloy and special steels in Indian and overseas markets. The company is having robust market position in the auto-grade micro-alloy steel business. Apart from catering to the domestic steel requirements, Sunflag Steel also exports to South East, Middle East, European countries, United States etc.

Joint Ventures (JV) and Technical Collaboration

In order to meet the market demands for new grades /applications, to improve existing processes and products and to support the customers in their efforts for localization of their steel requirements, Sunflag Iron & Steel Co. Ltd. has entered into technical collaboration with Daido Steel Co. Japan, it is one of the largest manufacturers of specialty steel in the world.

In fact Daido Steel Co. Japan has chosen the Sunflag Iron and Steel Company because it is the first company which meet their 4 phase investment and expansion criteria around the world. The Sunflag has technical collaboration with Daido Steel Co.  Japan since 2010. After successful completion of five years of technical collaboration with Sunflag, Diado Steel Japan has made decision for equity participation in 2014 and hold 10% stake in Sunflag as strategic partner.

Daido Steel has further expanded their ties 2015 by forming Daido DMS India Pvt Ltd.  A Joint Venture (JV) Company between Sunflag, Daido Steel Co and Daido Die and Mold Steel Solutions Co. Japan to manufacture, import, export and distribution in die, mould steel , tool steel and other metallic materials, processed products and mould parts.

For further detail refer page number 4, 7, 25 and 26 in below presentation of Daido Steel Co. Japan.

https://www.daido.co.jp/en/ir/presentation/2017mid.pdf

There is significant financial improvement since last 3 - 4 years  supported by development of new grades  of specialty steel and continuous improvements in existing business process of Sunflag.

 Ramesh Sunwire Private Limited

Sunflag has formed joint venture company with Stumpp Schuele & Somappa Springs Pvt Ltd. The main object of the said JV Company is manufacturing high quality of alloy steel wire for automobile and auto component industries both in domestic and export markets. The new plant will start contributing revenue from this year. Stumpp Schuele & Somappa Springs has about 30-35% market share in the domestic springs industry, and supplies about 4,000 varieties of springs.

 Coal, Iron Ore and Manganese Ore Mines

The Company is having operational captive Coal and Manganese mines at Belgaon Chandrapur and Bhandara in Maharashtra

Belgaon Coal Mine  is having  383.56 hectare area  at  Chandrapur, Maharashtra. This underground Coal mine is having estimated reserves of 8 millions tons (MT) with extractable balance of about 6.23 millions tons (MT)

Navegaon Manganese Mine is having  15.90 hectare area  at Bhandara, Maharashtra. It is open cast mine with reserves of about 30,000 tons

Navegaon Manganese Mine 2 is having  48.78 hectare area  at Bhandara, Maharashtra. Application for conversion of Prospecting Licence into Mining Lease is under process

Warpani Manganese Ore Block is having  1419.65 hectare area at  Nagpur, Maharashtra. Application for conversion of Prospecting Licence into Mining Lease over an area of 460 Ha is under process

Bande Iron Ore block is having 236.75 hectare area at Gadchiroli, Maharashtra. Application for conversion of Prospecting Licence into Mining Lease over an area of 205.75 Ha is under process

Kodalibad Iron and Manganese Ore Mine  is having 120.00 hectare area at Singhbhum, Jharkhand. Iron and Manganese Ore mining Lease is yet to be executed

Investment Rationale

Sunflag has large capacity manufacturing steel plant with latest technology from Mannesmann Demag and Krupp Industrietechnik Germany,  all required raw material  from captive coal, manganese and ore iron mines near to the plant,  allocation of large mining block for long term future use, captive power plant, cash rich strong balance sheet, visionary & experienced promoter and well-known successful partners make Sunflag a very asset rich company and ideal for investment.

The technical collaboration and partnership with Japanese steel maker Daido has enable Sunflag to get the direct access to latest technology for producing high quality specialty steel without any additional cost. 

Sunflag get easy access with trust to Daido's global relationship with leading automobile manufacturers such as Honda, Suzuki, Toyota in India. It has helped Sunflag to build and maintain its strong market position in automotive-grade micro-alloy steel business with wide product mix and established clientele base.

Alloy and special steel market are one of the fastest growing markets in India steered by the accelerated growth in automobile, infrastructure, defence and engineering  sector. Sunflag has large scale of operations with stable revenue outlook.

To meet the increasing demand and to keep-up with expanding special steels market, Sunflag is consistently developing new grades of steel and doing incremental investments for adding up new production capacities. 

Sunflag is one of the few companies in steel sector which are net debt-free. It has ended the last financial year with net profit of Rs. 128 crores and this year ( FY 2018 -19) it is expected to give even better results than last year.  The company is having enough cash in the balance sheet and healthy cash flow from current operation is giving scope for higher capacity expansion to meet the growing demand of special steel.

The company is already expanding its existing steel melt shop to produce high quality clean steel. This will enable the company to diversify its products.

Company improving capacity utilization with controlled working capital and cost savings by improving the operating efficiencies.

Even in the past its promoters has shown their excellent ability and vision to expand the steel business with keeping well control on debt metrics and working capital requirement. It is the critical area where most of the major Indian steel companies have failed and still struggling.

For further detail refer page number 1 and 18 to 24 for old report on steel sector in below pdf presentation

Note - Below 2015 report is given just for your reference. Since 2014 Sunflag has reduced its long term debt around 200 crores and increased its cash reserve above 600 crores due to its exceptional performance in steel sector.

https://www.motilaloswal.com/site/INST_RESEARCH/Sector%20update/METALS-STEEL-20150827-MOSL-SU-PG026635762971622391709.pdf

Auto industry is expected grow more than 7% and most of the world famous automobile companies are setting-up their manufacturing units in India. The cost of imported auto components is very high in India due to higher import duty. In current scenario these companies have to manufacture all critical components locally, it gives very good growth opportunity to special steel manufacturers to supply quality steel for these critical components.

Conclusion

Sunflag is very strong fundamental, asset rich, fast growing company in special steel segment. Sunflag mainly serving to the automobile, railways, defence, power and engineering sectors which are backbone of economy and growth possibilities are huge.

Market correction has given ideal investment chance to buy it 50% below from yearly peak. Sunflag Iron and Steel stock at cmp Rs 47 is one of the best investment opportunity in steel sector. It can be bought + / - 10% from cmp with 10 -20% of portfolio allocation.