Monnet Ispat - Result Update 1QFY2014 - Angel Broking

For 1QFY2014, Monnet Ispat (MIL) reported a decline in operating profit due to lower realizations. We maintain our Buy rating on the stock.

Lower realizations dent top-line: MIL's net sales declined by 9.7% yoy to Rs. 470cr, mainly due to lower realizations from steel and sponge iron segments which although was partially offset by higher volumes. Sponge iron and steel sales volumes increased by 6.4% and 2.1% yoy to 173,084 tonne and 25,916 tonne, respectively. However, sponge iron and steel realisations declined by 17.5% and 14.5% yoy to Rs. 18,676/tonne and Rs. 29,574/tonne, respectively.

EBITDA declines by 15.7% yoy: Despite net sales declining by 9.7% yoy, other expenditure increased 17.6% yoy to Rs. 50cr. This led to the EBITDA declining by 15.7% yoy to Rs. 115cr and EBITDA margin contracted by 171bp yoy to 24.4%. Interest and depreciation expenses grew by 29.5% and 20.2% yoy to Rs. 39cr and Rs. 26cr, respectively, on account of capitalization of various projects. Consequently, the net profit decreased by 23.4% yoy to Rs. 52cr.

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. 139, valuing the steel business at 4.0x FY2015E EV/EBITDA and investment in Monnet Power at 0.6x P/BV.

Source : Equity Bulls

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