Monnet Ispat - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Monnet Ispat Ltd (MIL) reported a robust operating performance; however, its bottom-line declined by 6.4% yoy mainly due to higher interest costs. We maintain our Buy rating on the stock.

Robust top-line performance: Net sales grew by 21.9% yoy to Rs.521cr mainly driven by the 14.5% yoy increase in sponge iron realization to Rs.22,648/tonne. The company's structural steel sales volumes grew by 29.1% yoy to 22,059 tonne and ferro alloys volumes were up 44.0% yoy to 2,220 tonne while power sales volumes declined by 1.3% yoy to 173mn units.

EBITDA increases by 17.0% yoy: Raw material costs as a percentage of sales increased to 62.0% in 1QFY2013 compared to 58.0% in 1QFY2012. The blended iron ore cost increased by 8.9% yoy to 7,487/tonne during 1QFY2013. Hence, the EBITDA increased only 17.0% yoy to Rs.136cr, while the EBITDA margin contracted by 109bp yoy to 26.1%. The net profit however decreased by 6.4% yoy to Rs.69cr due to higher interest and lower other income.

Steel projects delayed: MIL has announced significant delays in commissioning of its steel projects over the past two quarters. Further, it had also delayed 1,050MW power plant at Angul during 4QFY2012 by six months. It is now expected to be operational during 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 have been delays in the commencement of these projects, most of these projects would be backed by captive resources, thus ensuring robust profitability. Hence, we recommend a Buy on the stock with a target price of Rs.379, valuing the steel business at 4.0x FY2014E EV/EBITDA and investment in Monnet Power at 2.0x P/BV.

Source : Equity Bulls

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