>ELECTROSTEEL CASTINGS LIMITED (ANAND RATHI)

INVESTMENT RATIONALE

Company is a leading Ductile Iron pipes and cast iron pipe manufacturing company. It also offers turnkey solutions in water transport and sewage management. The demand for ductile pipes comes from Govt/ Govt sponsored projects for transportation of potable water and for cast iron pipes - from irrigation / sewage disposal projects. Demand for ductile pipes is growing very fast looking to growing focus of the Govt to provide potable water not only in India but also across Asia and other developing countries.

Company is fully integrated backward, with pig iron plant, sinter plant and captive power plant, as also iron ore & coal mining rights. This kind of integration leads to superior margins for company.

It is thus very cost efficient and large player earning attractive margins. Business is mostly dependent on municipal/Govt orders and is thus immune to economic/business cycle. Under - Accelerated Rural Water Supply Program and Pradhan Mantri Gramodaya Yojana - Rural Drinking Water; significant annual demand for projects and products [pipes] is generated on sustained basis. Through an SPV [wherein company holds 40% stake] it is also setting up a 2.2
million integrated steel plant, fully backed by required iron ore & coal mines. Of this 1.3 million capacity will come on stream by the end of '09 and rest will come on stream by the end of 2010. Captive mining of Ore and coal will also be operational by the same time or slightly latter, so cost of production will be always under tight control.

Company's current working is good and its likely to perform much better in coming years.

RISK: The key concern is Forex derivatives and forex losses. With rupee improving sharply, most of these concerns could be taken care of.

Buy [CMP 36 ] with price target of Rs 60 in 2-3 months. Long term investors can look for still better returns.

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