Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower production due to shutdowns: For 2QFY2011, Monnet Ispat (MIEL) posted
net revenue growth of 14.9% to `361cr, down 14.2% qoq. On account of the
maintenance shutdown undertaken during the quarter, sponge iron production
was lower by 5.3% yoy and 7.2% qoq to 162,851 tonnes, whereas power
production was flat yoy and down 15.8% qoq to 215mn units. While sponge iron
sales volume grew by 10.6% yoy to 157,026 tonnes, though down 7.4% qoq,
average realisations for sponge iron increased by 33.9% yoy, down 8.5% qoq.
Power sales volume increased by 3.5% yoy to 198mn tonnes but declined 10.2%
qoq. Power realisations increased by 3.0% yoy to `4.3/unit but fell by 11.5% qoq.
Margins contract due to higher iron cost: EBITDA margin contracted by
169bp yoy to 29.0% and was flat qoq primarily due to higher iron ore costs.
However, a 5.9% yoy fall in other expenses to `26cr restricted the fall in margin.
While interest expense declined by 10.1% yoy and 17.0% qoq to `12cr,
other income fell by 37.9% yoy to `7cr. Further, tax rate for the quarter stood at
19.9% v/s 17.1% in 2QFY2010. Consequently, net profit grew by 2.2% yoy to
`66cr, down 9.8% qoq.
Outlook and valuation: We believe timely execution of MIEL’s steel and power
projects can provide significant upside from current levels. We recommend Buy on
MIEL with an SOTP Target Price of `687, valuing the steel business at 6x FY2012E
EV/EBITDA and investment in Monnet Power at 1.8x P/BV.
Investment rationale
Expanding power capacity by 80MW in 4QFY2011E: MIEL is expanding its
power capacity by 80MW at Raigarh. The power plant, which is based on coal
and midlings, is expected to be operational by 4QFY2011E. We expect the
plant to contribute `95cr to the company’s bottom line in FY2012E.
Steel expansion of 1.5mn tonnes: MIEL is setting up a 1.5mn steel plant
through the BF-EAF route. Total capex for the project is pegged at `2,400cr,
with `1,400cr expected to be funded through debt and the balance through
equity. MIEL has tied up US $162mn of foreign currency loan and is
negotiating with banks for the balance amount. The plant is expected to begin
progressive commissioning in FY2012E. The pig iron and sinter plants are
expected to be commissioned in 1QFY2012E, while the sponge iron, SMS and
finished steel plants are expected to be commissioned in 3QFY2012E.
The pellet and coke oven plants are likely to go on stream post FY2012E.
Significant value unlocking lies ahead in Monnet Power: MIEL is setting up a
1,050MW (2x525) power plant through Monnet Power. The plant is being set
up at a cost of `5,000cr, with equity contribution of `1,200cr and the balance
being funded through debt. MIEL recently diluted 12.5% stake to Blackstone
for a consideration of `275cr. While the first unit is expected to be operational
by 1QFY2013E, the second unit is likely to come on stream by 2QFY2013E.
Mineral portfolio being further enriched: MIEL has been operating the
Milupara coal mine since FY2005. The company has also been granted the
Utkal B-2 coal mine, with reserves of 83mn tonnes. It has the capacity to mine
1.5mtpa of coal and is expected to be operational from 4QFY2011E.
Outlook and valuation
We believe timely execution of MIEL’s steel and power projects can provide
significant upside from current levels. While the 80MW power capacity expansion
will drive the earnings momentum in the near term, long-term stock performance
will be determined by timely expansion of the company’s 1.5mtpa steel plant and
unlocking of value in Monnet Power, which is implementing the 1,050MW power
project. We recommend Buy on the stock with an SOTP Target Price of `687,
valuing the steel business at 6x FY2012E EV/EBITDA and investment in
Monnet Power at 1.8x P/BV.
No comments:
Post a Comment