Maintain Buy on Bhushan Steel - Motilal Oswal

BHUSHAN STEEL 3QFY11: In-line, Volumes up 13%, Realization flat QoQ; Maintain Buy

Bhushan Steel 3QFY11 PAT increased 34% YoY to Rs2.8b (vs est. of Rs2.85b). Margins continue to be impressive at US$255/ton.

Net Sales increased 13% QoQ to Rs19.4b mainly driven by corresponding increase in volumes contributed largely by HRC and billets.

EBITDA increased 10% QoQ to Rs5.4b. EBITDA/ton declined 3% QoQ to US$255/ton vs peers like JSW Steel and SAIL at US$140 and US$120 respectively.

Debt reached Rs140b with Capex of Rs35b during 9mFY11, largely towards phase 3 expansion to 5mtpa capacity expected to be commissioned by June 2012.

Bhushan Steel has delivered superior margins due to focus on value addition, strict control over cost, & converting every gram of raw material in value added finished products. Volume will continue to grow as Hot strip Mill's capacity utilization improves every quarter. In FY13, expansion to 5mtpa will add further to volumes. Stock trades at FY12 PE of 6.4x and EV/EBITDA of 6.9x. We value the stock at Rs585 based on FY12 Book value of 2x. Maintain Buy, upside of 47%.

Source : Equity Bulls

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