Ispat industry---Ispat a long term rally counter(First target upto 40 : second upto 80) and after that a cyclic downside as it is related to commodity (steel).
I am suggesting this stock because it is probably getting a little bit of deferral on its Rs 600 crore loan obligation to IDBI Bank, IFCI Bank and ICICI Bank. So, they have said now you can pay us post May 2010 - where will they pay from is my bigger question. Is steel running away from here? Is global demand for steel going up? Is Ispat in a position at the current steel prices even if they stabilize here? Would they make any money? - remember the company made Rs 600 crore loss in the current quarter. Where are they going to find Rs 600 crore of cash to repay some of these banks? I have consistently maintained this is been one of the weakest players in the steel sector, you only buy Ispat in a roaring bull market in metals because they generate very good delta returns. Weakest players often do so from Rs 10 they will go to Rs 40 and be a 4 bagger, which will even put Tata Steel to shame in a bull market.
But when you get into a bear market for metals, as we are in right now, you have got to stay mile away from an Ispat kind of players. Because they will always go to the brink of bankruptcy in every bear market for metals and this time it is no different. So, you can get a little bit more of a pop because they bought little bit more time for themselves on that payment. But beyond that not to get too excited, you are getting a lot of metal stocks at 2 and 3 P/E. Ispat is not the tree you need to be barking out of because serially they get into this bankruptcy mode with the slightest hint of trouble.
Also on Ispat you need to worry now about some of these banks because this is what the markets fear is that you will have many more Ispats, who will not be able to pay up some of these banks and keep rolling their loans. You have seen it once in the last cycle as well and these are not small repayment obligations, they are Rs 600 crore between three banks. So, more you see issues like Ispat happening you tend to feel fear about what is going on with the banking space and whether more NPL will mount on there.
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