VISIT NOTE - MID-CAP STEEL COMPANIES :: Pinc

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We recently visited Raipur, Champa and Raigarh in
Chhattisgarh to overview the existing operations and
expansion projects of five mid-cap steel companies viz.
Godawari Power and Ispat, Monnet Ispat and Energy, Sarda
Energy & Minerals, Prakash Industries and MSP Steel and
Power.


Godawari Power: Recently commissioned 0.6mn tpa pellet plant
is operating at >100% capacity utilisation; 20MW biomass-based
power plant has commenced commercial generation. We also
visited plant of Hira Ferro alloys, which is all set to become 51%
subsidiary of GPIL post completion of announced amalgamation
of group companies.

Monnet Ispat: Monnet’s Rs25bn expansion project to set up
1.5mn tpa integrated steel plant is on schedule for completion by
FY12. We also saw Monnet’s underground coal mine at Milupara
(86mnt reserves, 1.0mn tpa output).

Prakash Industries: We saw Prakash’s existing operations and
expansion projects in Champa and Raipur and Chotia coal mine,
which is at 120km distance from Champa plant.

Sarda Energy and Minerals: Out of recently commissioned
capacities, wire rod mill of 180ktpa is operating well, while 0.6mn
tpa pellet plant is under stabilisation due to iron ore supply issues
and high yield loss.

MSP Steel and Power: MSP’s 3rd DRI kiln and recently
commissioned 18MW CPP are operating well. Expansion projects
for 0.6mn tpa pellet plant and 34MW power plant are on schedule.

OUTLOOK AND RECOMMENDATION
Most of the companies we interacted with showed their concerns
on slow offtake in demand for long products. Profitability is further
dented by poor supply and high cost of iron ore. However, the
outlook for Q4FY11 is upbeat and companies expect profitability
to improve sequentially in seasonally strongest quarter.
We maintain ‘BUY’ on Godawari Power with a target price of Rs276
and upgrade Monnet Ispat to ‘BUY’ from ‘HOLD’ with a target price
of Rs622 as pace of projects execution gives confidence. We
don’t have a rating on Sarda Energy, Prakash Industries and MSP
Steel and Power.