Bhushan Steel - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Bhushan Steel (Bhushan) reported a strong growth in top-line; however, its bottom-line was impacted by higher depreciation and interests costs. We recommend a Neutral rating on the stock.

Net sales grow by 26.8% yoy: During 1QFY2013, Bhushan's net sales grew by 26.8% yoy to Rs.2,747cr mainly on account of higher volumes of flat products. Flat products' sales volumes grew by 29.1% yoy to 502,091 tonne while long products' sales volumes declined by 1.5% yoy to 99,128 tonne in 1QFY2013.

EBITDA increased by 30.4% yoy: The company's EBITDA during the quarter rose by 30.4% yoy to Rs.862cr, representing an EBITDA margin of 31.4% (up 86bp yoy); however, the EBITDA/tonne stood at US$284 in 1QFY2013 compared to US$300 in 1QFY2012 and US$298 in 4QFY2012 due to higher costs.

Net profit falls due to higher interest and depreciation costs: The depreciation expense during the quarter increased by 36.9% yoy to Rs.207cr on account of higher capacity whereas the interest expense for the quarter increased by 75.2% yoy to Rs.378cr due to higher debt. Consequently, the net profit decreased by 1.8% yoy to Rs.206cr.

Outlook and valuation: We expect Bhushan 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 (3.0x for FY2013E and 2.6x for FY2014E). Further, at the current market price, the stock is trading at 8.9x FY2013E and 7.6x 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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