Sarda Energy & Minerals Ltd: Robust Business Model with Diversified Business
Industry Outlook:
Boosted by higher spends on infrastructure & gradual revival of the automotive sector, India’s steel demand growth will be the highest in 2022 at 7.5% among top consuming nations. In 2023, India’s steel demand growth will be the 2nd highest after Germany.
Low per capital consumption of steel, coupled with GOI’s target of producing 300 Million tons of steel by 2030 gives ample scope for iron & steel industry. The industry is witnessing consolidation of players, which has led to investment by entities from other sectors.
Business Overview:
SEML manufactures iron pellets, sponge iron, billets, wire rods and wires, along with ferro alloys and eco-friendly fly ash brick. The group has thermal power plants and a waste-heat recovery boiler to generate power that is largely used for captive consumption.
Key Strategic Priorities of SEML:
• Focus on Hydro
• Mining
• Expansion in Ferro Alloys
• Green Power & Sustainability
Products and Capacities:
Financial Performance:
Why should one invest in Sarda Energy?
On valuation front company is trading at 1.03 Price to book ratio which is lowest compared to its industry peers with diversified business model.
1. Established market position:
SEML is one of the largest manufacturers of manganese-based ferro alloys in India.
It’s portfolio is backed by the ability to manufacture different grades of steel products & niche-grade manganese-based ferro alloy products.
2. Backward Integration:
Their strategic foray into iron ore and coal mining has allowed them to mitigate risk of RM pricing volatility. Thus becoming self-sufficient and also getting an additional revenue stream.
3. Hydro Power:
The Co has three operational hydro power projects in Uttarakhand, Chhattisgarh and Sikkim with a combined capacity of 143 MW. It has signed long term PPAs with state discoms for supply of power.
Further, construction of a new 25 MW hydro power project in Chhattisgarh has commenced and is expected to commercialize by FY25.
4. Heavy Capital Expenditure:
The Co expanded Iron Ore Pellet capacity by 2 lac MMT to 8 lac MMT in March 2021. It also completed a 113 MW hydro power project at Sikkim which commenced operations in June 2021.
It is expanding Ferro Alloys capacity by 36 MVA to 147 MVA which is likely to be completed by FY23. Further, construction of a 24.9 MW Hydro Power plant on the Rehar river in Chhattisgarh has started and is expected to be completed in FY25.
