Bhushan Steel Ltd. - GEPL Capital

Q3FY12 – Strong growth in topline driven by higher realisation.

- Net sales of Bhushan Steel Ltd (BSL) for Q3FY12, grew by 23.9% Y-o-Y to Rs.24,071 mn driven by improvement in realisation with increase in volumes of flat steel products.

- EBIDTA Margin for the Q3FY12 grew by 241bps to 30.1% in Q3FY12 on Y-o-Y basis, driven by strong realisation, in house sourcing of Hot Rolled (HR) steel coupled with softening of raw material prices.

- Net profit for Q3FY12 stood at Rs.2,767 mn, showing a de- growth of 1.3% Y-o-Y. However on Q-o-Q basis net profit grew by 33.8%, mainly driven by a sharp fall in expense pertaining to interest & exceptional item, which fell by 24% on Q-o-Q basis.

Result Highlights

Strong Flat steel production in Q3FY12, driven by stabilization of Hot Rolled Plant at Orissa. Total Flat steel production grew by 16.1% in Q3FY12 on Y-o-Y basis. This was driven by a sharp increase in production of HR on account of stabilization of the plant. HR production for Q3FY12 grew by 34.1% Y-o-Y and 16.7% Q-o-Q. With further stabilization of HR steel plant we expect the contribution form HR to improve from current levels.

Sales volume for flat products in Q3FY12 grew by 17.1% Y-o-Y while for long steel products volume declined by 17% Y-o-Y. Net sales volume for flat products grew by 17% Y-o-Y, however volumes for long products on Y-o-Y basis de-grew by 17% in Q3FY11. As a result the overall net sales volume showed a moderate growth of 9.7% Y-o-Y. Blended net realisation grew by 13.2% on Y-o-Y, driven by sharp increase in realisation for Long as well as flat products.

Blended net realisation for Q3FY12 grew by 13.2% on Y-o-Y basis and 5.3% on Q-o-Q basis, aided by sharp increase in realisation of both long and flat products, which grew by 27.9% and 8.9% on Y-o-Y basis respectively.

Valuation & viewpoint

We maintain our target of Rs.377 based on DCF. However, considering the strong run up in the stock over the last 1 month we believe the upside is limited and hence changed our rating on the stock to NEUTRAL from the previous BUY rating a month back.

The overall performance of Bhushan Steel has been in line with expectation. Owing to its recent backward integration of making HR and further stabilization of the same had helped company improve its EBIDTA margins in Q3FY12. Highly stretched balance sheet with large debt remains to be a concern, however with recent announcement of company to raise equity capital of 7,000 mn by rights issue comes as a positive for the stock.

Source : Equity Bulls

Keywords