Electrosteel Castings - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Electrosteel Castings Ltd (ECL) reported a loss at the net profit level due to forex loss; however, excluding forex loss, the company's net profit grew by 1.9% yoy to Rs.29cr. We maintain our Buy recommendation on the stock.

Higher forex loss dents ECL's net profit: ECL's 1QFY2013 net sales increased marginally by 2.2% yoy to Rs.428cr; however, the EBITDA declined by a massive 79.4% yoy to Rs.11cr and the EBITDA margin contracted 1,035bp yoy to 2.6% due to a huge surge in other expenditure which grew 69.1% yoy to Rs.137cr. The company reported an exceptional item related to forex loss of Rs.46cr in 1QFY2013 (included in other expenditure), compared to Rs.0.3cr in 1QFY2012. Consequently the company reported a net loss of Rs.17cr, compared to a net profit of Rs.28cr is 1QFY2012. However, excluding exceptional items, the adjusted net profit grew by 1.9% yoy to Rs.29cr.

Update on mining projects: ECL's management expects stage-2 clearance for the company's iron ore mine by September 2012. Production of coking coal is expected to be ramped up in FY2014. The company aims to start commercial steel production from Electrosteel Steels Ltd (ESL) from September 2012.

Outlook and valuation: We maintain our positive stance on the company's initiatives of venturing into steel making through its associate ESL. Further, the company's backward integration initiatives through the allocation of iron ore and coking coal mines are expected to result in cost savings from FY2014. We maintain our Buy view on the stock with a SOTP target price of Rs.23.

Source : Equity Bulls

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