maverick
05-12-2007, 06:19 PM
Facor Steels-A Possible Take-Over Target (A Stop Loss is a must..highly speculative play)
FACOR Steels-A Friendly Take-Over On The Way
The Saraf family owned Nagpur based Alloy Steel Manufacturer FACOR Steels may soon find itself into the arms of Larsen Toubro, if market grapevine is to be believed.
The take-over price being whispered is Rs 25 per share valuing FACOR Steels at Rs 500 crore. The transition can be done easily, as the Sarafs and their co-promoters own 86 per cent of the Equity which they have been regularly selling in the open market. For instance, Cornell Corporation has sold close to 13 per cent of the Equity out of its 23 per cent stake in the company. While Saraf family members too have found the current buoyancy suited to Sell their stock in the open market.
So instead of doing piecemeal selling, the management might do well to sell the entire unit at one go. This is important as the Sarafs have to support two more equally weak entities FACOR Corporation and Facor Alloys, and fund infusion will help the other two concerns.
So where does Larsen and Toubro fit in? To be precise L&T needs huge quantities of special steel, alloy steels and carbon steels for its various units across the country and its ship-building units in Gujarat and upcoming SEZs. Location wise Nagpur is much closer to the point of utilisation where Facor Steels existing unit has a capacity to produce about 50,000 tonnes of special steels per annum required by the forging and heavy engineering units. So the product makes an ideal fit for L&T.
Secondly and more importantly, Facor Steel has won a Coal block in Orissa on which a 250 MW pit-head plant is to be built. Under the New Power Access Policy, Power Producers who supply the generated power to PGCIL, can draw equal quantities of Power from anywhere in the Grid.
While current Power Units being planned in Orissa will produce and supply power at Rs 2.33 per unit, the going per unit rates in Gujarat are as high as Rs 6 to Rs 8 per unit. Shipbuilding is a power intensive business and it hurts L&T to Buy power at unaffordable rates.
It thus makes sense to put up a power plant in Orissa and use the same power in Gujarat by paying an extra access tariff. Very Uniquely inspite of its long history L&T has no manufacturing facility in Orissa so far and this may turn out to be their first investment in the State. The integrated Power plant and Coal mines in Orissa will cost Rs 1500 crore add to which Rs 500 crore for the Special Steels unit and we have a friendly take-over in process.
The risks to this deal remains an aggressive sell-out price asked for by the Promoters of Facor Steel and their continued dumping of stock in the open market. On current performance, Facor Steel will close FY08 with Revenues of Rs 500 crore and marginal post tax profits on a Rs 20 crore Equity (Face Value Rs 1).
A price of Rs 25 per share seems amply logical and needs to be accepted by the promoters.
FACOR Steels-A Friendly Take-Over On The Way
The Saraf family owned Nagpur based Alloy Steel Manufacturer FACOR Steels may soon find itself into the arms of Larsen Toubro, if market grapevine is to be believed.
The take-over price being whispered is Rs 25 per share valuing FACOR Steels at Rs 500 crore. The transition can be done easily, as the Sarafs and their co-promoters own 86 per cent of the Equity which they have been regularly selling in the open market. For instance, Cornell Corporation has sold close to 13 per cent of the Equity out of its 23 per cent stake in the company. While Saraf family members too have found the current buoyancy suited to Sell their stock in the open market.
So instead of doing piecemeal selling, the management might do well to sell the entire unit at one go. This is important as the Sarafs have to support two more equally weak entities FACOR Corporation and Facor Alloys, and fund infusion will help the other two concerns.
So where does Larsen and Toubro fit in? To be precise L&T needs huge quantities of special steel, alloy steels and carbon steels for its various units across the country and its ship-building units in Gujarat and upcoming SEZs. Location wise Nagpur is much closer to the point of utilisation where Facor Steels existing unit has a capacity to produce about 50,000 tonnes of special steels per annum required by the forging and heavy engineering units. So the product makes an ideal fit for L&T.
Secondly and more importantly, Facor Steel has won a Coal block in Orissa on which a 250 MW pit-head plant is to be built. Under the New Power Access Policy, Power Producers who supply the generated power to PGCIL, can draw equal quantities of Power from anywhere in the Grid.
While current Power Units being planned in Orissa will produce and supply power at Rs 2.33 per unit, the going per unit rates in Gujarat are as high as Rs 6 to Rs 8 per unit. Shipbuilding is a power intensive business and it hurts L&T to Buy power at unaffordable rates.
It thus makes sense to put up a power plant in Orissa and use the same power in Gujarat by paying an extra access tariff. Very Uniquely inspite of its long history L&T has no manufacturing facility in Orissa so far and this may turn out to be their first investment in the State. The integrated Power plant and Coal mines in Orissa will cost Rs 1500 crore add to which Rs 500 crore for the Special Steels unit and we have a friendly take-over in process.
The risks to this deal remains an aggressive sell-out price asked for by the Promoters of Facor Steel and their continued dumping of stock in the open market. On current performance, Facor Steel will close FY08 with Revenues of Rs 500 crore and marginal post tax profits on a Rs 20 crore Equity (Face Value Rs 1).
A price of Rs 25 per share seems amply logical and needs to be accepted by the promoters.