Electrosteel Castings - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Electrosteel Castings (ECL) reported a strong growth in its operating profit, mainly due to a decline in costs. We maintain our Buy recommendation on the stock.

Lower costs lead to higher profits: ECL's 2QFY2013 net sales increased by 5.2% yoy to Rs.479cr due to higher realizations as well as sales, in our view. ECL's EBITDA increased by a massive 79.3% yoy to Rs.81cr and EBITDA margin expanded 704bp yoy to 17.0% due to lower raw material costs and other expenditure. The company reported an exceptional item relating to write-back of forex losses provided during FY2012 and 1QFY2013, amounting to Rs.12cr.

Excluding this exceptional item, the adjusted net profit grew by 28.3% yoy to Rs.25cr. Update on mining projects: The management expects stage-2 clearance for the company's iron ore mine by March 2013. Production of coking coal is expected to be ramped up in FY2014. The company has started commercial steel production from some of the facilities of Electrosteel Steels (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 sum-of-the-parts (SOTP) target price of Rs.29.

Source : Equity Bulls

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