Monnet Ispat - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Monnet Ispat (MIL) reported a robust operating performance; however, its bottom-line declined by 7.3% yoy mainly due to higher interest costs. We maintain our Buy rating on the stock.

Robust top-line performance: MIL's net sales grew by 19.3% yoy to Rs.547cr mainly due to increase in sales volumes of sponge iron (+15.4% yoy). Also, basic steel and power realizations grew by 30.7% and 49.0% yoy, respectively. EBITDA increases by 16.7% yoy: Although net sales grew by 19.3% yoy, MIL's EBITDA increased by only 16.7% yoy to Rs.139cr mainly due to higher iron ore costs which grew by 8.2% yoy to Rs.6,713/tonne. Interest expenses and depreciation expenses grew by 156.6% and 18.7% yoy. Consequently, net profit decreased by 7.3% yoy to Rs.71cr.

Steel projects delayed further: MIL has (again) announced delay in commissioning of its steel projects during 2QFY2013. Post its 4QFY2012 results, it had announced a six month delay in its 1,050MW power plant at Angul (expected to be operational in 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 Buy on the stock with a target price of Rs.344, valuing the steel business at 4.0x FY2014E EV/EBITDA and investment in Monnet Power at 1.5x P/BV.

Source : Equity Bulls

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