Ispat Industries - awaiting turnaround; visit note; Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Ispat Industries (NDEN IN, INR 25, Not Rated)

We recently visited Ispat Industries’ (Ispat) HRC plant near Mumbai. Key takeaways of the same are as follows:

n  Rapid ramp up of HRC production to 70% utilisation; targeting 90%

Ispat has rapidly ramped up HRC production to 70% utilisation after re commissioning operations in end December. Target utilisation is 90%, the key challenges for achieving which will be working capital availability and raw material sourcing. We expect JSW Steel to address these issues over the next two quarters. In 12mFY10, actual capacity utilization was 80%.

n  Process efficiencies satisfactory; marginal improvements possible

Overall, operations at the plant are running broadly in line with industry standards. Iron ore, coke/PCI, and power consumption norms are on expected lines. Low staff cost, DRI-BF-EAF route, and thin slab casting reduce conversion costs.

n  Natural gas usage in blast furnace (BF) to conserve coal: A first

The company has begun using natural gas (~30kg/t) in its BF fuel mix to reduce high cost coke usage. This also reduces silicon content in the mix and improves combustion of coal.

n  Lack of captive power and raw material key challenges

Besides not having operational captive mines, Ispat also suffers from high freight cost (no proximate raw material sources) and no captive power and coke plants. Virtually all power is procured from MSEB at an expensive rate of INR 5.7 p.u.

n  Achievable EBITDA/t for FY12E is ~USD 130/t

With the current configuration we believe Ispat can achieve an EBITDA of
USD 90-100/t. Procurement of cheaper power and 2 mt pellets from JSW Energy and JSW Steel, respectively, can boost EBITDA to USD 130/t in FY12E.