Sarda Energy and Minerals - 1QFY2013 Result Update - Angel Broking

We resume our coverage on Sarda Energy and Minerals (SEML). For 1QFY2013, SEML reported strong growth in profitability due to better realizations and lower costs in its ferro alloy segment. We recommend Buy rating on the stock.

Higher steel segment sales drive top-line growth: During 1QFY2013, SEML's net sales grew by 34.3% yoy to Rs.341cr due to rise in the steel segment volumes. Blended steel realization grew by 38.9% yoy to Rs.45,880/tonne on account of improved product mix. Ferro alloy sales volumes grew by 22.6% yoy to 17,928 tonnes and segment realization improved 32.6% yoy to Rs.71,408/tonne.

Ferro alloy segment lifts SEML's 1QFY2013 profitability: SEML's EBITDA increased by 58.2% yoy to Rs.58cr due to strong profitability performance from ferro alloy segment. Ferro alloy segment EBIT increased 363.1% yoy to Rs.40cr mainly due to increase in realizations coupled with decline in price of manganese ore (key input). However, EBITDA margins contracted 256bp yoy to 17.0%. Nevertheless the company's adjusted PAT grew by 42.1% yoy to Rs.20cr in line with increase in EBITDA.

Outlook and valuation: We believe that SEML is well poised to benefit from a) backward integration into coal and iron ore, b) commercial production of pellets and c) increased power and ferro alloy production. Moreover, firm sponge iron and billet prices should lead to higher capacity utilization in FY2013 and FY2014, thereby leading to higher sales volumes. We recommend Buy on the stock with a target price of Rs.148, valuing the stock at 3.0x FY2014E EV/EBITDA.

Source : Equity Bulls

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