Nandish Shah of Moneycontrol.com today discussed about Vesuvius India stock, which he has been tracking closely.
The company is a subsidiary of Vesuvius Group, UK, which owns 56 percent stake in it. Steel consumes 10-14 kilograms of refractories per tonne with replacement required in 20 minutes to three months, thereby driving the Vesuvius India's volume growth.
Increase in steel production will lead to higher demand for refractory products. From CY2022 to CY2025, India is likely to witness an incremental capacity of more than 18-20 million tonne.
As per various industry reports, steel production is likely to increase by 9-11 percent in CY22.
The company has strong customer relationship with Tata Steel, JSW Steel and Jindal Steel and Power. These players account for nearly 45-50 percent of the street market.
Vesuvius has increased its services business from 4 percent of revenues from 2013 to 26 percent of revenues in CY20 and a CAGR growth of 35 percent.
With lower share of trading revenues and increasing share of services, margins are likely to remain higher and stable.
As on June 30, 2020, the company has cash and cash equivalent of Rs 533 crore, which is nearly 23 percent of market capitalisation.
The company is a proxy play for increased production of steel, which is likely to be seen in FY22 and FY23.
The company is currently trading at a P/E multiple of 20 times CY23 earnings.
Investors with a long-term view can accumulate at current levels and add on declines.
Watch the accompanying video for more details.