Recommendation from iron and Steel Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

BMW INDUSTRIES : MOVING AHEAD WITH A STEELY RESOLVE

HERE IS WHY
✓ Proven track record of three decades
✓ Anticipation of robust growth trajectory
✓ Strong diversification strategy

S teel has been a cornerstone of industrialisation, serving as both a primary raw material and an essential intermediate product. India’s steel industry, composed of major, main, and secondary producers, has witnessed significant growth fuelled by the domestic availability of iron ore and a cost-effective labour force. In FY24 (until November 2023), crude steel production reached 94.01 MT and finished steel production reached 88.81 MT.

The annual steel production is expected to exceed 300 million tonnes by 2030-31, with crude steel production reaching 255 million tonnes and finished steel production reaching 230 million tonnes. Owing to this, our low-price scrip recommendation for this issue is BMW Industries Ltd.

BMW Industries, established in 1999, is a West Bengal-based company that has been processing continuous galvanised lines on behalf of Tata Steel (TSL) for around three decades. The company converts hot rolled materials supplied by TSL into galvanised corrugated (GC) sheets, sold under the brand Tata Shaktee. BMW is the largest conversion agent for large-scale galvanised sheets to TSL.

The company also manufactures mild steel, long and flat products, and tubular poles and structures. In October 2022, BMW entered into a long-term agreement with TSL for the conversion of billets to TMT bars. The company, with a proven track record of 30 years in the steel industry, aims to enhance the value of semi-finished steel products while ensuring stable margins. Its strategic focus is on expanding the pipes and tubes segment, building a strong brand identity, and solidifying its conversion business. The company anticipates a robust growth trajectory, projecting a top-line CAGR of 17-18 per cent and an operating EBITDA margin of 27-28 per cent by FY26. This growth is underpinned by long-term contracts that secure its entire production capacity.

To achieve its goals, the company has successfully commissioned 414,000 metric tonnes of its planned capacity. The company’s diversification strategy involves nurturing its Bansal Super brand and cultivating a resilient supply chain. With a positive outlook, the management is confident in the company’s ability to maintain its growth momentum and profitability.

In Q1FY25, on a consolidated basis, its revenue increased by 10.24 per cent YoY to ₹173.65 crore compared to ₹157.52 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 26.46 per cent. The PBIDT excluding other income increased by 15.52 per cent to ₹42.39 crore YoY as compared to ₹36.69 crore from the previous year’s same quarter, while sequentially increasing by 8.68 per cent.

The net profit stood at ₹22.16 crore compared to ₹15.57 crore, a YoY increase of 42.34 per cent, while sequentially increasing by 16.64 per cent from ₹19 crore. On a TTM basis, the shares of the company are trading at a PE of 23.5 times, which is higher as compared to its three-year median PE of 16.7 times, but lower than the industry PE that stood at 26.8 times. The company has a threeyear compounded profit and sales growth of 1 per cent and 15 per cent, respectively. Its three-year average ROE and ROCE are around 8.39 per cent and 10.9, respectively. Considering the growth of the steel sector and the opportunities that lie ahead, we recommend BUY.