Monnet Ispat - 4QFY2012 Result Update - Angel Broking

Robust top-line performance: Monnet Ispat (MIL) reported robust top-line performance for 4QFY2012. The company's top line grew by 20.4% yoy to Rs.536cr mainly due to increased realizations of sponge iron, which grew by 23.2% yoy to Rs.24,159/tonne. The company's structural steel sales volumes grew by 25.7% yoy to 21,065 tonnes, while power sales volumes declined by 23.5% yoy to 180mn units. Net realization on power sales grew by 14.3% yoy and 2.7% qoq to Rs.3.6/unit during the quarter.

EBITDA increases by 7.5% yoy: Raw-material costs as a percentage of sales increased to 59.8% in 4QFY2012 compared to 55.7% in 4QFY2011. Average iron ore cost increased by 3.1% yoy and 7.8% qoq to Rs.6,761/tonne in 4QFY2012. Hence, EBITDA increased only by 7.5% yoy to Rs.138cr, while EBITDA margin contracted by 308bp yoy to 25.8%. Interest expenses increased by 34.2% yoy to Rs.24cr, while other income increased by 97.5% yoy to Rs.13cr. Consequently, net profit grew by 8.5% yoy to Rs.83cr.

Power project delayed by six months: MIL plans capex of Rs.1,500cr for its upcoming power plants and Rs.800cr for steel capacity expansion during FY2013. The implementation of the 1,050MW power plant at Angul has been delayed by six months and is now expected to be operational in 2HFY2014.

Outlook and valuation: MIL is on the verge of a massive expansion in its steel business. The long-term stock performance will be determined by the timely expansion of the 1.5mtpa steel plant and unlocking of value in Monnet Power, which is implementing the 1,050MW power project. Although there could be some delays in the commencement of these projects, most of these projects would be backed by captive resources, thus ensuring robust profitability. Hence, we recommend Buy on the stock with a target price of Rs.593.

Source : Equity Bulls

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