Sarda Energy and Minerals:2QFY11:Motilal Oswal

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 Sarda Energy and Minerals posted adjusted loss of Rs4m (standalone) in 2QFY11, led by higher raw material costs
and lower metal realizations. Reported standalone PAT of Rs176m included Rs162m of forex gains. Other income
included Rs90m of profit on sale of investments.
 Net sales declined 8% QoQ to Rs2b. Revenue from steel division grew 4% QoQ to Rs986m on account of higher
steel volumes. Company produced more steel and sold less sponge (-36% QoQ to 32,832 tonnes) during the quarter.

 Revenue from ferro-alloy division declined 9% QoQ to Rs1.03b, as ferro-alloy prices declined. Ferro-alloy volumes
grew 10% QoQ to 15,217 tonnes.
 The company sold less power, as power rates were also subdued and decided to produce steel. Sales volumes
declined 86% QoQ to 2.94MU.
 The sharp decline in steel EBIT was on account of higher iron ore prices. Average iron ore cost increased 20-25% to
Rs7,500/tonne. Manganese ore prices were also higher during the quarter.
 The 0.6mtpa pellet plant was not operational for 49 days to undertake modifications to accommodate high moisture
iron ore fines and increase capacity utilization. It produced 18,741 tonnes of pellets. However, plant utilization is
improving and we expect higher production in 2HFY11.

 Its Rs5.5b ferro project at Vizag is progressing on schedule. 281 acres of land has been acquired while key BTG and
furnace orders have been placed. Production capacity would be 125ktpa with 2x33 MVA submerged arc furnace and
80MW CPP. The project is likely to get commissioned by 1QFY13.
 The stock is trading at 7.2x FY12E EPS and an EV of 7.3x FY12E EBITDA. Maintain Buy.