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November 25, 2012

Indsil Hydro Important update

Note : SOLD ALL Holding  Dec 2014 with avg price of 44
There are lot of things happen for Indsil Hydro , there are few positive news which likely to make Indsil Hydro mulitbagger from the current level of around Rs 29 but same time there are few negative as well . I will start with the negative .

Negative News :

               Quarterly Result : - Indsil Hydro posted quite a bad quarterly result for Sep12 . Profit was only 0.15 Crores against 2.2 crores . The main culprit was increased power expenditure and lower price realizations.
               Renewable Energy Certificates : Earlier , I had covered REC aspect of this company but It looks like the REC market is in coma for non-solar .REC certificates for non-solar are trading at the floor price . Last month buy order were 1.32 lakhs REC against 8.51 lakhs REC available for sell .Currently REC mechanism is going through a low-enforcement scenario , we can just hope for a better future . I hope the ministry of renewable energy will raise the issue at appropriate forum and try to solve it . Last 3 months of the financial year will see some action again. By the way , one ray of hope on enforcement came from a Rajasthan HC decision in case of (Companies including Ambuja Cements, Shree Cement, DCM Shriram Consolidated and Grasim Industries ) , as per path breaking order “Captive, Open Access users liable to pay RPO penalties: Rajasthan HC” Get Detail . But the bad news is that they may challenge it in supreme court.

Positive News :-

               Positive news came from the latest annual report for FY11-12 which you might have received in your email 3-4 days back If you are existing investor , else you can access from Value2wealth Google Drive (View Annual Report). When I last check it was not available on BSE site.
               JV Project in Oman Status :        
               The company has provided following update on JV Project in Oman
“As reported in the last year's Directors Report, the JV Project in Oman (Al-Tamman Indsil Ferro Chrome LLC) established in the Sohar Free Zone in Sultanate of Oman is building a world-class Ferro Chrome Smelter with an initial capacity to produce 75,000 tpy at a cost of USD 35 Million. Most of the civil work have been completed. Equipment installation work had commenced and it is expected that the
1st furnace of the project would be commissioned by early March, 2013. The 2nd furnace will follow within 4-6 weeks after 1st commissioning of the 1st furnace. Thus, the plant is expected to be fully operational with a capacity of 75,000 tpy of ferrochrome by April 2013.”

So , wait of the last few years is going to end in the next few months . Of course , profitability will depend on price realization.

Consolidated Account :
Project status is big update but I get biggest news when the company said they are going including results of AL-TAMMAN INDSIL FERRO CHROME LLC in the consolidated account result. This is most important because initially I had not given much weightage to this project since investment could have gotten locked and It could have been realized only by getting some dividend or selling stake . But this statement changes the picture quite nicely for the company .

The followings are auditor comments regarding this consolidation , which are important , since we generally see consolidation of account when stake is at least 50% .

Interests in Joint Venture have been accounted by using the proportionate consolidation method as per Accounting Standard (AS) 27 - " Joint Ventures".

Investments other than in subsidiaries and Joint Venture have been accounted as per Accounting Standard 13 on Accounting for Investments.

We report that the consolidated financial statements have been prepared by the Company's management in accordance with the requirements of the Accounting standards ( AS 21) " Consolidated Financial Statements "& Accounting Standard (AS) 27 - "Financial Reporting for Interests in Joint Ventures" as notified pursuant to the Companies ( Accounting Standards ) Rules 2006 and on the basis of separate financial statements of INDSIL Hydro Power and Manganese Limited and its subsidiaries.

Royalty :
               This news is ice on the cake .

               The Company's investment in the Oman JV project to produce ferro chrome will start paying dividends from the middle of next calendar year (2013). The income stream will be in the form of royalties per ton of ferro chrome produced as well as dividends, if any, from the profits accrued. Subject to the success of the first phase of the ferro chrome project, your Company plans further investments in the JV to potentially double capacity of the ferro chrome smelter.

               Please note Indsil Hydro will get royalties on per ton produced , not on the PAT . We rarely see Indian company get royalties from foreign partners . Managing Director Vinod Narsiman is B.E., MBA (University of Michigan) . Did he play a role in getting this great deal in the JV?

Number Game :
               If this JV project gets success then it will be game changing for the Indsil Hydro in coming years . Again , number are unbelievable for this small cap company if both phases get successful . I played with the numbers which will be true depend on  rate and capacity utilization.  I can play with numbers and predict revenue but can’t predict PAT from JV .
               Current rate for ferro chrome is 2420 USD / ton , which is around rock bottom and 5 year high around 6300 USD/ton. (Refer 5 year Rates  , KPMG Report , Steelguru report  )

                      Capacity Utilization of 75000 TPA Capacity
Capacity Utilization of 1,50,000 TPA Capacity


INR in cr @55



INR in cr @55



INR in cr @55


Note : If you find something wrong in my calculation then please let me know at .

If both phases get successful then Indsil Hydro can have 5-15 times more revenue from current revenue of almost 70 crores , which can vary on world economic scenario and ferro chrome prices . I can’t predict  what will be Net Profit Margin it can be 5 or even 15-20% or may be even negative . On top of this company will receive royalties on tonne produced . They have not mentioned exact rate in the annual report .

Multibagger Formula for Indsil Hydro :-
                     There are at least 8-10 factors which will decide whether it will become 5x in next 5 year or not . I tried to put it in a formula as an experiment you can put your own weightages.

Here Fields Are 

               CG  : Corporate governance satisfaction factor score ( possible values binary either 1 or 0 )
All following score can have values from 0-10 .
               F1 :  Indian both smelter performance factor score .
               F2 : 21 MW Hydro power performance factor score .
               F3 : Oman JV project Phase-I factor score.
  F4: Oman JV project Phase-I factor score.
               F5: Royalty Rates for Oman JV project score .
               F6 : REC Market condition Score
               F7: Indian Stock Market sentiments, especially for small cap.
               F8: Favourable Ferro Chrome Price Score

The Oman JV project does not look factor-in in the current market price of 29 (market cap 44) . You have 3 choices either skip this stock idea , start analysing it or wait till real impact of the Oman JV project start getting in the results . Please also not that share of Indsil Hydro currently available  with around 4% cash back ( Rs 1 , Ex dividend on 10 Dec) .

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Disclaimer :  Please treat this post as starting point of your research and not conclusion to invest in any discussed stock. As always , please take the advice of a financial adviser . 


  1. I believe I am the only person who is bullish on this counter . I don't see the interest of other investors in this counter .

    For me it is buying a lottery ticket with the two conditions
    1. Wait till the global market for the metal sector normalize .
    2. If I win get 4-5 times ,If I loose will get at least principal back with cond 1

  2. I am very much interested, let me go through 11-12 AR, company say its a JV, and what is there investment on JV? in 10-11 AR I did not see any work in progress or any investment made or booked in balance sheet, if they are saying they will add the income from JV to consolidated P&L why the investment is not shown now? OR they are showing JV as long term investment?

    1. Thanks Srinidhi,
      There is one Note in FY11-12 AR
      "The audited accounts of Al-Tamman Indsil Ferro Chrome LLC., Joint Venture for the year ended 31 December, 2011 is
      based on the International Financial Reporting Standards ( IFRS). For the purposes of consolidation with Indsil Hydro Power
      and Manganese Limited, certain expenses like project salaries/ rent for the leased land for the factory under construction
      which has been charged-off in the Statement of Profit & Loss in the JV enterprise have been included as a part of construction
      work in progress (CWIP - RO 58,525/-) in the consolidated financial statements as per Indian Accounding Standards as the
      same is specifically attributable to the Ferro Chrome Project."

  3. Hey Dost, m interested in this counter for sometime..have been doing the research
    one important thing i wud like to mention is ..wht do u think abt the competition? in the country (i.e., Oman) is looking to make it self a regional hub for ferrochrome....and for that..not only (Indsil+Muscat Overseas) is there....there are 2 - 3 more projects going on/approved for the purely local...i.e., Gulf Mining Materials which might have an upperhand! ... ur view is most welcome



  4. Thanks Simran ,

    Yes , there are other 3-4 big tickets project are going to come in Oman and Oman can produce all most 5% of global Ferro Chrome demand . Ferro Chrome is global commodity and It is not going to be absorbed in local Oman region. So, competition is with all the global player instead of local Oman player . I believe it competition fear is going to be vice-versa. Global players from other regions are going to face tuff completion from Oman players. Oman players are going to have some kind of moat over other global players by lowest cost production in the world. I have only concern about labour cost , else all other cost are going to be low as compare to rest of the world . This can be compensated by no personal income tax .Taxes in Oman are very cheap when compared with other locations in the world. There is no personal income tax; the only tax that applies is a corporate income tax, which is only 12% of the net profits. But Sohar zone has 10 year corporate tax holiday.

    Electricity cost is also low in Oman , other global players from South Africa and India are facing issue of high electricity prices. Oman has electricity rate for industry according to period of year. Current rate is for 8 month period September to April is 12 Bz/kWh (equitant INR 1.70) and for rest of the months rate is double. For more details refer .
    As the result of low production costs, all year operations due to good weather(other current major player can't have all year operations), and excellent infrastructure present, Ferro Chrome from Oman will have the lowest production cost as compared to Ferro Chrome from other countries.

    Apart for this Sohar freezone provides, some special incentives like
    100% foreign ownership
    10 year corporate tax holiday
    No customs duty on goods brought into the Freezone
    No restrictions on local sales
    Relaxed level of Omanization
    One Stop Shop for all relevant clearances

    Only few exiting investor know about project is going to commence soon, once other investors will know about it , they will start tracking this counter and maybe we will see some price movement as well . It is quite difficult for range bound stock like Indsil to get price movement.
    I believe in current market cap of Indsil Hydro nothing to loose . Generally , utility companies get PE of 12 and small cap can be PE of 8-10 . If this is then yardstick then last year company’s hydro power division has done 14.24 crores of PBDIT (assume PBT of 10 crores) , then it should trade around market cap of 80-100 crores. If following division/stream does not perform well then also this stock is cheap.
    1. Renewable Energy Certificate (REC)
    2. Existing smelter plant
    3. Acquired smelter plant
    4. Oman JV project
    5. Any royalties on per ton of ferro chrome produced from JV.

    Imagine what will happen if all these 5 streams start to perform. May be patience and luck will also play some role for investors to get reasonable or extraordinary return from this counter. Since most of the revenue is going to come from commodity related business, this counter is going to show volatile results.

  5. Thanks for the awesome reply!

    The things detailed by you make all very good sense. In addition to the excellent potential, the stock is quite cheap..i.e., ++((net current assets+investments)- debt) sense is even if the potential doesn't come out to be astronomical...the minimum increase in sales and profit will lead to good results due to base effect....and price/market cap can gain 3–4X in 2–3 years from hereon.

    PS: I have started to accumulate shares in the company. Plan to buy it in steps :)

    Thanks again dost, regards

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