Bhushan Steel - Anticipating volume surge; company update; Hold - Edelweisss

Bhushan Steel (BSL) in the concall to discuss Q4FY12 results highlighted: (a) commissioning of Phase III is on track for completion in Q3FY13; (b) volume guidance of 2.7‐2.8mt in FY13 (our assumption 2.1mt) on back of strong demand from auto/white goods industry; (c) it may raise ~USD300‐500mn in current fiscal depending upon the capital market scenario. We retain estimates and maintain 'HOLD' with target price of INR402/share.

FY13 volume guidance at 2.7‐2.8mt

BSL has given a volume guidance of 2.7‐2.8mt for FY13 with HRC production target of 1.8mt. Capacity utilisation at the sponge iron plant (current 55‐60%) is also expected to improve to ~70% in FY13.

Phase III project to be commissioned in Q3FY13

Phase III expansion project is expected to get commissioned in Q3FY13. While the slab caster is expected to start in August 2012, blast furnace is expected to be commissioned by November 2012 (we assume no benefit of same in FY13). Till date, INR110bn has been spent on phase III implementation with additional INR25bn likely to be spent over the next six‐nine months.

Equity issuance of ~USD300‐500mn in FY13

Post the INR7bn rights issue in January 2012, the company plans to raise another ~USD300‐500mn via QIP in the current fiscal depending upon capital market scenario.

Outlook and valuations:

Positives priced in; maintain 'HOLD' Timely completion of Phase III project is a key trigger for BSL. We retain our estimates and maintain 'HOLD/Sector Performer' on the stock with TP of INR402/share. At CMP, the stock is currently trading at 6.7x FY14E EV/EBITDA while we are valuing at 5.5x.

Source : Equity Bulls

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