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We visited MSP’s operations in Raigarh, Chhattisgarh. MSP
is an integrated steel producer with presence from pellet to
rolled products and has plans to further integrate with its
foray in iron ore and coal mining.
Existing capacities and expansion projects
Sponge Iron: The company currently operates 3 DRI kiln of 350tpd
each (total 307ktpa). Recently commissioned 3rd kiln is operating
at 50% capacity utilisation. The company plans to augment the
capacity by 115ktpa by setting up 4th kiln of 350tpd by Sep’11, for
which financial closure has been achieved. However, we found
that not much work has been done on the ground yet.
Power plant: Post commissioning of 18 MW (12 MW - coal based,
6 MW – WHRB), company’s captive power capacity stands at
42MW (Captive consumption ~ 24 MW, Merchant power 18
MW). An additional 34 MW (coal-based) is planned to be
commissioned by Oct’11 at Raigarh unit for merchant sales.
Steel making and rolling facility: The company has 5x8t/heat
+ 1x18t/heat induction furnaces (billet capacity of 144ktpa). Rolling
capacity consists of 80ktpa of TMT and 128ktpa of structurals.
Pellet plant: The company currently has 300ktpa pellet plant,
which is operating at nearly 50% CU and has a conversion cost of
Rs2,000/tonne (excl. cost of fines, yield loss of ~30-35%). Project
to increase the pellet capacity to 900ktpa by Oct’11 is underway.
Coal washery: MSP plans to increase coal washery capacity
from current 345ktpa to 686ktpa at a capex of Rs600mn.
Raw Material – Mines allocated: MSP has been allocated
captive coal and iron ore mines in Chhattisgarh. The company
expects to commence operation at coal mine by end FY11, while
iron ore mines are at least 5 years away.
VALUATIONS
At CMP of Rs 58, the stock is trading at 7.2x EV/EBITDA and
10.6x P/E on FY10 basis. On H1FY11 annualised basis, the stock
is trading at 5.5x EV/EBITDA and 8.6x P/E. We currently don’t
have a rating on the stock.
Financial performance
H1FY11 performance: MSP’s H1FY11 revenue increased by 13% YoY to Rs1.9bn.
Operating profit grew by 63% YoY to Rs443mn on account of higher share of better-margin
products - power and structurals. OPM expanded by 700bps to 23%. Adjusted profit grew
by 112% YoY to Rs196mn.
Financial leverage: With total debt of Rs5.3bn as of H1FY11, MSP has a D/E ratio
at 2.0x.
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