Bhushan Steel - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Bhushan Steel (BSL) reported 44.3% yoy growth in its top line; however, its net profit grew by only 14.9% yoy due to higher depreciation and interest costs. We recommend Neutral on the stock.

Robust top-line growth due to increased volumes: BSL's net sales increased by 44.3% yoy to Rs.2,837cr mainly on account of a 45.8% yoy increase in sales volumes to 620,067 tonnes in 4QFY2012.

EBITDA margin growth due to operating efficiency: The company's EBITDA grew by 49.0% yoy to Rs.898cr in 4QFY2012 on account of increased net sales and EBITDA margin expansion of 100bp yoy to 31.6%.

Depreciation and interest costs dent net profit growth: During the quarter, the company's interest expenses grew by 125.6% yoy to Rs.299cr and depreciation expenses grew by 140.5% yoy to Rs.166cr, as the company had capitalized its phase-II expansion and increased its capacity during FY2012. Hence, profit after tax increased by only 14.9% yoy to Rs.331cr.

Expansion projects on track: BSL's phase-III expansion in Odisha is running on track; the company expects to complete the expansion project by October 2012. The company had a gross of ~Rs.21,000cr as on March 31, 2012 (including working capital) and its weighted average interest cost was 9.25%.

Outlook and valuation: We expect BSL to complete phase-III expansion during 3QFY2013, the benefits of which will be witnessed during FY2014-15. However, we remain concerned over its high leverage. Further, at the CMP, the stock is trading at 8.3x FY2013E and 7.0x FY2014E EV/EBITDA, a significant premium over its peers. Hence, we have a Neutral view on the stock.

Source : Equity Bulls

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