Scripscan:Vikash Metal & Power Ltd
Code:532677
cmp:20
Story:The company manufactures and trades sponge iron and ferro alloys. Over the past few years, VMP's performance has remained subdued. Low capacity utilisation and thin margins appear to have affected the business.A number of other companies in the Impex group (run by the promoters), mainly into trading ferro alloys, have also shut operations after running up losses for several years.The pricing environment does not offer a great degree of comfort. Sponge iron prices, after shooting though the roof last year, have cooled off.Shortage of coal and iron ore (the principal raw materials for producing sponge iron) in the medium term is likely to provide a stable outlook for sponge iron prices.The pricing effect is likely to be more pronounced in the stainless steel market where the demand has been sluggish in the last few months and may take a while before it picks up. Considering this, the company's ferro alloy plant, is expected to contribute to volume growth.Owing to its small size and scale of operations, limited geographical presence and absence in downstream operations, VMP may find it difficult to withstand any cyclical downturn.Consolidation in the domestic steel sector, which is likely to change the industry dynamics in the long term, also remains a threat.Growth in terms of value, is however, likely to be flat because of lower realisations. Given the stiff valuation, a lacklustre performance, tightening pricing environment and a high level of gearing, VMP may not provide an attractive investment oppurtunity.Exit and move on to better bets.
