The company's latest quarterly and FY 2002-03 results were encouraging and, with healthy order book positions, the next two years (FY 2003-04 and FY 2004-05) are expected to be even more impressive.

For the quarter ended 31 March 2003, the company posted a net profit of Rs 2.05 crore (Rs 1.11 crore) on sales of Rs 87.77 crore (Rs 63.02 crore). For the year ended 31 March 2003, the company's net profit works out to Rs 6.80 crore on total income of Rs 6.80 crore (Rs 4.69 crore) on sales of Rs 172.87 crore (Rs 127.26 crore).

The company is engaged in the design and implementation of turnkey projects for cold rolling mills, galvanising lines and colour coating lines. While the company is a major player in the domestic market with clients such as Tisco, Bhushan Steel and Jindal Steel, the company has recently begun focussing on exports.

Flat Product Equipment has received significant export orders for cold rolling mills from countries like Japan, Mexico, China, Indonesia, Iran etc. In fact, the export contribution to the total sales improved significantly from 47% to Rs 69.8% in FY 2002-03.

The recent revival in the steel sector has led to increased demand for expansion of cold rolling mills and galvanising lines capacity, especially in the Chinese market where a number of steel producers have undertaken modernisation and upgradation of their facilities. With steel prices looking up, a number of steel producers are looking at capacity expansion. This offers a great opportunity for Flat Products.

Flat Product has a huge order book position, primarily from the export market. The company's order book position stands at around Rs 556 crore at present, of which export orders comprise Rs 384 crore (70% of the total order size.

In the export market, the company has received a major Rs 175 crore order from Union Steel, China, for two galvanising lines, colour coating line and temper mill. The company also had orders in hand from Iran, Malaysia and Taiwan. In the domestic market, the company has received an order from Bhushan Steel for its Khopoli project, worth Rs 88.70 crore. The project includes setting up of six mills, colour coating lines and heat to coat galvanise lines.

The company's project-driven business tends to have very low operating margins. While the company's operating margins were 6.4% in FY 2002-03, in future, OPM levels are expected to remain in the 6.5-7% range. In FY 2003-04, however, the company's operating profit is expected to grow by 123% (Rs 25.80 crore), driven by good top-line growth.

The company's growth is highly co-related with the capacity expansion in the steel sector. Though currently there are some capacity expansions, modernisations and upgradations taking place in the steel sector, it may not be sustainable when the global steel capacity saturates with fall in demand.

The company is expected to report its highest-ever sales and net profit in the current year, on the back of the huge order backlog. For the year ending 31 March 2004, the company is expected to post a net profit of around Rs 16.50 crore on sales of Rs 380 crore. At the current price, the Flat Product scrip is trading at a forward P/E multiple of 2.70 times. Historically, the stock has been trading at a P/E multiple in the range of 1.8-2.5%. However, with expectations of an encouraging performance in the next couple of years, there is a case for a re-rating of the stock.