Sarda Energy and Minerals - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Sarda Energy Minerals Ltd (SEML) reported a strong growth in profitability backed by higher volumes and better realizations across its products. We recommend a Buy rating on the stock.

Revenue growth driven by higher steel sales: During 2QFY2013, SEML's net sales grew by 39.6% yoy to Rs.351cr due to rise in steel segment volumes. Ferro Alloy sales volumes grew by 3.8% yoy to 17,068 tonne and ferro alloy realization improved by 19.3% yoy to Rs.64,691/tonne. However, billets sales volume decreased by 32.4% yoy to 6619 tonne. Pellet production increased significantly to 126,973 tonne (compared to 34,081 tonne in 1QFY2013).

EBITDA up strongly on better sales: The company's EBITDA increased by 104.3% yoy to Rs.72cr due to a strong profitability performance from the ferro alloy segment and also the steel business. The ferro alloy segment's EBIT increased 81.4% yoy to Rs.19cr mainly due to increase in realizations. The EBITDA margins rose by 650bp yoy to 20.6%. However, the company's interest costs increased by 238.0% yoy to Rs.18cr which led to the net profit rising by only 19.6% yoy to Rs.28cr.

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 pellet 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.153, valuing the stock at 4.0x FY2014E EV/EBITDA.

Source : Equity Bulls

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