Electrosteel Castings (CMP: Rs47/ TP: Rs.72/ Upside: 54%)
Electrosteel’s (ECL) backward integration initiatives through coking coal mine at
Parbatpur (Jharkhand), which is already operational, is expected to result in
expansion of EBITDA margin by 329bp over FY2010-12E.
The company is also awaiting final environmental clearance for its iron ore mine at
Kodolibad (Jharkhand), which will further lower costs, but has not been factored in
our estimates.
ECL is venturing into steel-making through its associate Electrosteel Steels, which is
setting up a 2.2mn tonne steel plant expected to begin progressive commissioning
from October 2010E. The plant is expected to be fully commissioned by June
2011E.
Currently, the stock trades at 0.8x FY2011E and 0.7x FY2012E P/BV. On a P/E
basis, the stock trades at 7.2x FY2011E and 6.9x FY2012E earnings. We maintain
a Buy on the stock, valuing the Core business at 8x FY2012E FDEPS and its
investments in the Steel business at 1x Book Value.
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