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Bhushan Steel
Transformation continues; maintain Buy
Bhushan Steel’s (BSL) 3QFY11 performance was robust, with
~38% yoy growth in operating profit and 23% yoy growth in net
profit, on the back of improving utilization from its new hot
rolled coil (HRC) plant. Maintain Buy.
Higher volume and realization boost revenue. BSL reported
~36% yoy revenue growth to `19.4bn for 3QFY11, largely on
account of 30% yoy growth in blended sales volume and 4% yoy
growth in blended realization. Sales volume stood at 0.46m tons in
3QFY11 compared with 0.36m tons in 3QFY10. Volume was up
13.2% qoq.
Higher utilization of HRC plant boosts EBITDA, which grew
~38% yoy to `5.4bn. Despite raw-material cost pressure,
EBITDA margin remained stable yoy, at 27.7%, in the quarter on
account of benefits of the HRC plant. EBITDA/ton expanded
US$14/ton yoy to US$256/ton.
Net profit up 23% yoy to `2.8bn, owing to higher volume and
benefits of the HRC plant. Net profit, however, grew slower than
EBITDA due to higher interest costs, which grew ~75% yoy.
Change in estimate. We marginally trim our earnings estimate by
3.6% for FY11, but largely maintain our estimates for FY12.
Valuation and risks. At current market price of `398/share, the
stock trades at FY12e PE of 6.9x and EV/EBITDA of 4.8x. We
believe that expansion coupled with backward integration would
result in significant expansion in earnings going forward. Maintain
Buy. Key risks: Delay in expansion and higher leverage.
Outlook and valuation; maintain Buy
BSL would benefit from the volume growth arising from its new HRC
plant at Orissa. The backward integration into HRC would help improve
margin. We expect earnings to see CAGR of 22.6% through FY10-13e.
At current market price of `398/share, BSL trades at FY12e
EV/EBIDTA of 4.8x (adjusted for capital work in progress-CWIP) and
FY12e PE of 6.9x. We maintain Buy on the stock with a target price of
`516.
Risks
Higher-than-expected iron ore and coking coal costs may impact
BSL’s earnings due to its low level of backward integration.
Slower-than-expected recovery in the Indian markets may put
pressure on demand drivers and, consequently, impact steel
demand and prices.
Any delay in capacity additions would affect our estimates.
High leverage would be a concern, if steel prices correct
significantly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bhushan Steel
Transformation continues; maintain Buy
Bhushan Steel’s (BSL) 3QFY11 performance was robust, with
~38% yoy growth in operating profit and 23% yoy growth in net
profit, on the back of improving utilization from its new hot
rolled coil (HRC) plant. Maintain Buy.
Higher volume and realization boost revenue. BSL reported
~36% yoy revenue growth to `19.4bn for 3QFY11, largely on
account of 30% yoy growth in blended sales volume and 4% yoy
growth in blended realization. Sales volume stood at 0.46m tons in
3QFY11 compared with 0.36m tons in 3QFY10. Volume was up
13.2% qoq.
Higher utilization of HRC plant boosts EBITDA, which grew
~38% yoy to `5.4bn. Despite raw-material cost pressure,
EBITDA margin remained stable yoy, at 27.7%, in the quarter on
account of benefits of the HRC plant. EBITDA/ton expanded
US$14/ton yoy to US$256/ton.
Net profit up 23% yoy to `2.8bn, owing to higher volume and
benefits of the HRC plant. Net profit, however, grew slower than
EBITDA due to higher interest costs, which grew ~75% yoy.
Change in estimate. We marginally trim our earnings estimate by
3.6% for FY11, but largely maintain our estimates for FY12.
Valuation and risks. At current market price of `398/share, the
stock trades at FY12e PE of 6.9x and EV/EBITDA of 4.8x. We
believe that expansion coupled with backward integration would
result in significant expansion in earnings going forward. Maintain
Buy. Key risks: Delay in expansion and higher leverage.
Outlook and valuation; maintain Buy
BSL would benefit from the volume growth arising from its new HRC
plant at Orissa. The backward integration into HRC would help improve
margin. We expect earnings to see CAGR of 22.6% through FY10-13e.
At current market price of `398/share, BSL trades at FY12e
EV/EBIDTA of 4.8x (adjusted for capital work in progress-CWIP) and
FY12e PE of 6.9x. We maintain Buy on the stock with a target price of
`516.
Risks
Higher-than-expected iron ore and coking coal costs may impact
BSL’s earnings due to its low level of backward integration.
Slower-than-expected recovery in the Indian markets may put
pressure on demand drivers and, consequently, impact steel
demand and prices.
Any delay in capacity additions would affect our estimates.
High leverage would be a concern, if steel prices correct
significantly.
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