Downgrade Monnet Ispat to Neutral - Motilal Oswal

MONNET ISPAT 3QFY11: In-line; Mt Everest merged; Promoter holding up 7pp to 51%; Valuations full; Downgrade to Neutral

Monnet Ispat 3QFY11 adjusted PAT increased 14% QoQ to Rs702m (+3% YoY) due to higher sponge iron prices and lower interest expenses.

Net sales declined 3.7% QoQ to Rs3.47b (-6.7% YoY). Revenue from sponge iron increased 5% QoQ at Rs2.64b (+41% YoY) on higher sponge iron realization.

Revenues from the power segment declined 17% QoQ at Rs713m on lower realization. Power realization decreased 21% QoQ to Rs3.39/unit (-30% YoY).

EBITDA increased 6% QoQ to Rs1.12b. Margins improved by 3pp to 32% sequentially due to better sponge iron realization and lower iron ore cost.

Interest costs were lower QoQ to Rs54m due to higher interest income on fixed deposits and derivative gains.

Earnings are expected to grow at a CAGR of 15% over FY10-13E. We value the stock at Rs510 based on 6.5x FY12 core business EBITDA, and Rs23b for its equity stake of 87.5% in Monnet Power (1050MW project) and Rs4.2b for Orissa Sponge. Stock trades at rich valuations of 9.6x FY12 PE and 11.8x FY12 EV/EBITDA. We are downgrading the stock to Neutral.

Source : Equity Bulls

Keywords