Electrosteel Castings - Result Update 1QFY2014 - Angel Broking

For 1QFY2014, Electrosteel Castings (ECL) reported an 8.8% yoy jump in topline, while its EBITDA grew by 236.7% yoy. We maintain our Buy recommendation on the stock.

Lower costs lead to higher profits: ECL's 1QFY2014 net sales rose by 8.8% yoy to Rs. 466cr due to higher realizations in our view. ECL reported an EBITDA of Rs. 38cr in 1QFY2014, compared to an EBITDA of Rs. 11cr in 1QFY2013, due to lower raw material and power costs and lower other expenditure; the EBITDA margin also increased by 549bp. The company's depreciation costs decreased by 2.7% yoy to Rs. 13cr and interest costs declined by 13.0% yoy to Rs. 29cr. Therefore, the company posted a PAT of Rs. 45cr compared to a PAT of Rs. 17cr in 1QFY2013.

Other updates: The iron ore mine continues to await stage 2 clearance. The company aims to produce 0.6-0.7mn tonne of coking coal in FY2014. The company has an order backlog of approximately 9 months.

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 (although not factored in our estimates currently) and coking coal mines are expected to result in cost savings from FY2014-15. We maintain our Buy view on the stock with a SOTP target price of Rs. 15.

Source : Equity Bulls

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