Suraj Products Limited

 

CMP = 111

Suraj Products Limited was  incorporated in the year 1991 as Champion Cement Industries Limited. Subsequently in the year 2000 company has  changed its name to Suraj Products Limited. Since 2002, the company has discontinued the cement manufacturing plant and diversified into manufacturing of metallic products. The company owns and operates only one manufacturing plant in Sundargarh, Odisha. Suraj Products Limited is engaged in production of sponge iron by direct reduction of iron ore, pig iron, ingots / billet, TMT bars and power generation.

Manufacturing Capabilities

At present, the company has an installed capacity to produce 36,000 mtpa (metric tonnes per annum) of sponge iron, 36,000 mtpa of pig iron,  72,600 mtpa of billets,  72,600 mtpa of TMT bars and 9 MW captive power generation capacity.

The operations of the plant is vertically integrated as sponge / pig iron are used to produce  billets and the billets are used to manufacture TMT bars of desired profiles.

Rationale

Suraj Products Ltd has transformed it self into vertically integrated steel manufacturer from a merchant plant.  It is characterised by the presence of DR  kiln (used to manufacture sponge iron),  blast furnace (used to manufacture pig iron), induction furnace and continuous steel casting plant to produce billets using captive sponge iron and pig iron. The manufactured billets are then subjected to rolling to produce TMT bars of desired profile.

Earlier, company only used to manufacture pig iron and sponge iron but since 2018, the company has undertaken several capex which has resulted in major turnaround for the company

In FY 2018, the company has commissioned 3 MW waste heat recovery based captive power plant and an induction furnace of 25,000 tonnes per annum  capacity . 

In FY2019, Suraj Product installed its second captive power plant of 3 MW (AFBC based) and doubled its steel melting capacity to 50,000 tonnes per annum. 

In FY2020, company added a rolling mill facility of 72,600 tonnes per annum for production of TMT bars and an induction furnace of 22,600 tonnes per annum. 

Recently in 2022, company has added  beneficiation plant of 3,00,000 tonnes per annum capacity  and further expansion of its captive power generation capacity by 3 MW. 

The entire portion of the recent capex was funded through internal accruals, it is expected to give the healthy cash generation in the near future.

Company has gradually changed in the product mix from sponge & pig iron to  rolling mill, it allows the company to sell more TMT bars and value-added product.

Significant portion of the company’s total thermal coal requirements for manufacturing of sponge iron is met from the linkages obtained through auctions, keeping the landed cost of coal competitive and enhancing raw material security.

Suraj Products Ltd derive major strength from the very favourable location of its plant in terms of proximity to key raw material sources like ore iron, coal and magnesium. Odisha has high quality iron ore deposits and it has the highest share in production of iron ore in India.

The company is able to produce high quality products due to vertically integrated  operations with capacity to manufacture sponge iron, pig iron, billets and TMT bars at single location.

Presence of captive power plant ensures availability of power at a cheap rate.  The steel melting operation is highly power intensive. However, power generated through captive power plant at a cheap rate meets the major part of its overall power requirement, which positively impacts the cost structure. 

The company is expanding  its captive power generation capacity from  6 MW to 9 MW. The additional power generation capacity will meet most of the incremental power demand arising out of the increased scale of operations. In coming quarters it will further strengthen the operating profile of the company and enable sizeable cost savings.

Recent capex likely to further strengthen the operating profile of the company. The company has recently completed the capex plan towards cost improvement initiatives with installation beneficiation plant of  3,00,000 metric tonnes per annum capacity . There is significant price difference between high-grade and low-grade iron ore. Demand is also substantially high for high-grade iron ore. The beneficiation plant  will enable the company to improve the product quality with significant cost savings.

The central government's call for Aatmanirbar Bharat has given a whole new dimension to the nation. The steel is a vital component for nation development.  The various sectors that are expected to contribute to the growing demand are infrastructure, smart cities, sagarmala projects, bridges, airports, industrial plants, buildings, automobiles, new roads and highways, railways, cargo terminals, National Ropeways Development Program for hilly areas and housing projects. etc all are expected to create steel demand, this will augur well for steel industry.

Conclusion

Suraj Products Limited is strong fundamental and fast growing company. It has already completed most of the expansion and upgradation of plant. Now the benefit of all these effort  has just started reflecting in results. 

Suraj Products Limited at cmp Rs 111 is excellent investment opportunity for both short term and long term. It can be bought + / - 15% from cmp with 10 %  allocation.