Why I Bought Bajaj Steel Industries (BSE Code 507944) ?

• Bajaj Steel Industries Limited (BSL), Nagpur, India, established in 1961, is a public limited company, listed on Bombay Stock Exchange. The company is having world class engineering setup in its various plants situated in and around Nagpur… On October 03, 2024 Bajaj Steel Industries is going to consider Bonus Shares for its shareholders
• BSL is the largest and modern Cotton Ginning and Pressing Plant & Machinery Manufacturer in India. With over five decades of experience and expertise, the company is having world class engineering facilities with diversified sectoral presence.
• The company manufactures/sells throughout the world machineries/system of Cotton Ginning, Cotton Conveying, Cotton Cleaning, Cotton Bailing Presses, Delinting and Decorating Machineries, Humidification Systems, Power Transmission Products, Pre – Engineered Buildings, Electrical Panels, Firefighting Systems, Specialty Conveyor, Hydraulics Equipment, Master Batches etc.
• The company is serving the Ginning and Pressing Industries worldwide and has been well recognized for its quality and is the only company in the world producing machineries for all the Four Ginning Technologies used in the world viz. Single Roller, Double Roller, Rotobar and Saw Gin and all the Pressing Technologies viz. Down packing, Up packing & Horizontal packing.
• The Machineries/equipment’s manufactured under technical collaboration with M/s. Continental Eagle Corporation USA by us, are well accepted all over the world and the company has supplied such machineries/equipment to various advance countries such as Australia, Greece, USA, Uzbekistan, etc. apart from substantial supplies to Africa.
• BSL has also tapped the new markets such as Argentina, Brazil, Sudan, Benin and other West African countries for enhancing growth of its products and has expanded its Electrical Panels division and have commenced its Manufacturing at New Plant at Plot No. XI-73, MIDC Industrial Area, Hingna, Nagpur- 440028 for manufacturing various Electrical Panels including PCC Panels, MCC Panels, APFC Panels, IMCC Panels, Drive Panels, PLC & SCADA Panels, AMF Panels, Synchronization Panels, Control Panels, Lighting Panels, Power Distribution Boards, Customized Panels and Panel Cabinets and these panels are being well received in the India and abroad.
• Further, the pre engineered steel buildings division has also been expanded and getting good response within and outside India.
• The growth potentials of both these divisions are high.
• The Company is also successfully involved in the business of Pre-Fabricated Buildings (PEB) and executed more than 250 Steel Building projects (Domestic and Export). The Company has in-house Design & Engineering Capabilities to reach new frontiers of technical excellence.
• The Company is providing different solutions for different purposes such as Pre-Engineered Buildings, Pre-fabricated Buildings, PEB Industrial Shed, Pre-fabricated School Buildings, Prefabricated Warehouse, Structures, Agricultural Buildings, etc.
• SUPERPACK division, is a leading Manufacturer and Supplier of wide range of Master batches having well equipped production facility with well-versed quality section which help the company to deliver consistently high-quality product to the customer at the most competitive price.
• Superpack Division is into the production of various kind of Master batches having proven range of master batches for various applications like especially for HDPE & PP tapes, Injection & blow molded items lamination of woven fabrics, non-woven fabrics etc. TiO2, UV & elastomer based master batches. All grades are well accepted & adopted by various plastics processing industries.
• The Company is also expanding its activities in the selling of complete fire-fighting systems including Fire extinguishers, Hydrant systems, Sprinkle systems and Fire Diversion Systemsand Steel Doors etc.
• The strong vision and dedication of the management and employees has put the Company as one of the biggest manufacturers of Cotton Ginning and Pressing Machineries with distinction of having *only company in the world with capa
• bilities for manufacturing Cotton Ginning Machines for all the four major cotton ginning technologies being used in the world and enjoying substantial of the market share in India while rapidly expanding in the other cotton growing countries of the world.*
• The company also undertakes turnkey projects including civil in its area of operation.
• BSL’s wholly owned subsidiary company i.e Bajaj Steel Industries (Uganda) Limited has completed the project of Cotton Development Organization for Phase -III also in Cotton Seed Processing Plant at Pader District in Uganda. The prospects for the current year are encouraging.
• The Company is also trying to increase the revenue from other segments such as PEB, Electrical Panels, Fire Fighting Equipment’s and Specialty Conveyors etc.
• The company has been diversifying into different products to mitigate the risks and to grow in the business.
• The company with well diversified product mix within capital goods category products where it earn 75% of its revenue and the rest is contributed by growing Superpack division, is having small equity capital of just 2.35 crore where promoters hold 36%, 20% is held in physical form with individual shareholders, 12% held by promoter group company, 2.3% with IEPF Fund, leaving low floating stock in the market, With trailing twelve months sales of 380 crores and Net profit of 21 crores giving an EPS of 59 per share. is trading at a PE of just 3.56, while industry PE for capital goods company is 40. The company is regular dividend paying company since year 2007. With improving sales and profit over the last few years, the financial position of the company is becoming very strong which can be seen from improving ROE which stands at 18.39% and RoCE of 21.25%, BSL is one of the few capital goods company whose sales and profit are rising even during slowdown of last couple of years and even during lockdown, which can be seen in June quarter numbers.
• With revival of rural economy, backed by bumper sowing of cotton crops coupled with anti-china sentiment and support of Governments Atmanirbhar Bharat campaign to help local industry, the demand of the company’s product will improve sharply giving boost to its topline and bottomline.
• With increase in import duty on textile and apparel from 10% to 20% and additional duty on fabrics from China and hongkong at the rate of USD 1.14 per metre will only increase cotton consumption in India which will immensely benefit the company, as it’s one of the leading cotton ginning and processing machinery supplier.
• Promoters recently subscribed preference shares at Rs 107 and increase their stake by 10%. Company is reducing the debt and will be debt free in next few years.
• Recent developments
• Hived off loss making business
• Exiting of a set of promoter (took plastic biz) – clean run for current set of mgmt
• Per recent credit report – sizable order book from PEB(pre engineering bldg – infra play – has done 1000+ projects per website) and many new customer + new geo for core biz
• Stable margins across last few qtrs (wd be better once hived off plastic biz no hit goes away)
• Focus on consumables + exports helping remove cyclicality for ginning machine consumables – AR and credit reports give good insights
• Strong export trajectory to US (via Baja coneagle – local setup in US)
• Good price action with good delivery based accumulation
• textile revival should augur well for ginning mills (a sizable end customer biz), as well as RM cool off to help
• Since they are one of majority player in ginning machinery exports – one can track same to get idea of trend – though that is not the only thing they do
• Valuations – TTM basis 11PE is not demanding for a ginning leadership co and leadership position in ginning machinery and upcoming PEB verticals to expand opportunity size, clean bal sheet. Promoter holds substantial stake (incldg grp co under pulic holdg) and have increase recently.
• Never run after just low priced stocks… Instead focus on Market capitalization… A stock might look high priced and still it can be a small cap stock & extremely undervalued…Bajaj Steel Industries is one such stock… Its price of 1,300 look high but its a very small company of just 600 crores …As you all know that my criteria to filter stocks are numerous and it’s very difficult for a stock to pass through all my filters…. So when in October 2022, one small company named Bajaj Steel Industries ltd passed all my filters, it was a slight surprise for me…. Market Capitalisation of the company was less than 600 cores … But instead of ignoring this company, I decided to research further deep in the company…. I analysed the financial statements and ratio of the company from many angles and found the numbers excellant … I cross checked the numbers from different sources, read annual reports… Numbers were looking extraordinary from all perspectives and share price was not reflecting the underlying financial strength of the company….Soon, I became sure of my research that I have found an excellent company, with real presence on the ground, and trading at extremely attractive prices…. Though its not possible to provide all the reasons, Below I am providing some reasons about my Bullishness of the company

Promoters increased their stake by 3% in 2022.

• Bajaj Steel Industries ltd is the only company in the world producing machineries for all cotton ginning technologies i.e Double Roller, Saw Gin & Rotobar, all Pressing technologies i.e. Down Packing, Up Packing & Horizontal Packing, as well as Seed Cleaning, Delinting & Decorticating, apart from general engineering fabrication, machining, intelligent electrical panel manufacturing and various other engineering activities.
• Debt is very less in the Company.
• Despite market capitalisation of less than 500 Crores, Company has more than 100 Crores of Cash & Bank Balance in its books in 2022… If I remove this Cash from assets because of its being unutilised, then ROE in last 2 years is more than 60% !!!
• Very Good Cash Flow
• Weakness in Rupee good for the company as company makes high exports and earns that revenue in Dollars.
• Founder of the company Mr MK Sharma is a PHD.
• Generally I love ‘small’ but ‘strong‘ plants which has potential to become big Trees… I don’t like Big Trees because those have already achieved saturation level and can not grow further…. That’s why I love ‘quality‘ Small Cap Stocks….KPR Mills which was identified by me at a Market Capitalisation of 400 Crores, is currently trading at Market Capitalisation of 20,000 Crores…. And Market Capitalisation of Bajaj Steel Industries ltd also is approx 400 Crores today.
• According to Screener.com, PEG ratio of Bajaj Steel Industries is only 0.25 (see screenshot below), which means at current price of 1295, it is trading at 75% less than its Fair value and its fair value according to above PEG ratio should be 5150 rs…….A Company which is in existence since last 60 Years and doing good, there is no reason to believe it won’t survive another 60 years and doing better !!