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M.Cap. (US$ m) 176.7
Sarda Energy and Mineral's standalone adjusted PAT for 3QFY11 was Rs55m (down 67% YoY) v/s a loss of Rs4m
in 2QFY11.
Net sales increased 7% QoQ to Rs2.1b. Steel division revenue grew 10% QoQ to Rs1.1b due to higher steel
volumes. The company produced more steel and sold less sponge iron during the quarter. Saleable steel product
volumes grew 49% QoQ to 25,525tons while average realization declined 2% QoQ to Rs26,750/ton. Sponge realization
was up 7% QoQ at Rs16,900/ton.
Ferro alloy division revenue grew 2% QoQ to Rs1.05b on higher volumes. Ferro alloy sales tonnage increased 8%
QoQ to 16,441tons while realization declined 6% QoQ to Rs59,783/ton.
EBITDA increased 27% QoQ to Rs205m, well below our estimate of Rs378m due to poor performance from ferro
alloy division. Steel division EBIT increased 3x QoQ to Rs110m, while ferro alloy division EBIT declined 38% QoQ to
Rs85m. The sharp decline in ferro alloy EBIT was due to decline in realization and higher raw material prices. Landed
iron ore cost also increased 7% QoQ to Rs8,075/ton.
Pellet plant failed to operate for too long; FY12E EPS cut 30%; downgrade to Neutral
The 0.6mtpa pellet plant has failed to operate satisfactorily even after two years of operations and numerous
modifications; the company has paid dearly by way of lost opportunity. The spread between cost of pellet and market
price is too big to ignore operational failure for such a long period. The plant produced 45,848tons of pellets in
3QFY11. Captive naxal-affected mine located at Rajnandgaon has not yet re-started.
We have cut our FY11E EPS by 38% to Rs11.6 to factor the lower than expected results for 3QFY11. We have also
incorporated lower pellet production and higher raw material costs in our FY12 estimates. We have cut FY12E EPS
by 30% to Rs25.3 from Rs36.5 earlier. The stock is trading at 9.1x FY12E EPS and an EV of 9.1x FY12E EBITDA
Sarda Energy and Mineral's standalone adjusted PAT for 3QFY11 was Rs55m (down
67% YoY) v/s a loss of Rs4m in 2QFY11. Reported standalone PAT of Rs63.4m included
Rs12m of forex gains.
Revenue grew 7% QoQ due to higher steel volumes; ferro alloy realization
declined 6% QoQ
Net sales increased 7% QoQ to Rs2.1b. Steel division revenue grew 10% QoQ to
Rs1.1b due to higher steel volumes. The company produced more steel and sold less
sponge iron during the quarter. Saleable steel product (billets and wire rods) volumes
grew 49% QoQ to 25,525tons while average realization declined 2% QoQ to Rs26,750/
ton.
Sponge iron production declined 13% QoQ to 51,466tons while steel production was
up 66% QoQ to 39,523tons. Ferro alloy production increased 1% QoQ to 16,195tons.
Sponge iron sales volumes declined 27% QoQ to 23,937tons, as the company produced
more steel. Sponge realization was up 7% QoQ at Rs16,900/ton.
Coal mining at Karwahi open cast mine is ramping up in line with the requirement of
360ktpa sponge iron facilities. The company produced 106,037tons of coal during
3QFY11.
Ferro alloy division revenue grew 2% QoQ to Rs1.05b on higher volumes. Ferro alloy
sales tonnage increased 8% QoQ to 16,441tons while realization declined 6% QoQ to
Rs59,783/ton.
The company sold less power, as power rates remain subdued and decided to produce
steel. Sales volumes declined 83% YoY to 6.55MU.
Raw material cost inflation continues to perturb; 20MW CPP at Raipur gets
statutory clearances
EBITDA increased 27% QoQ to Rs205m, well below our estimate of Rs378m due to
poor performance from ferroalloy division.
Steel division EBIT increased 3x QoQ to Rs110m, while ferro alloy division EBIT
declined 38% QoQ to Rs85m. The sharp decline in ferroalloy EBIT was due to decline
in realization and higher raw material prices. Landed iron ore cost also increased 7%
QoQ to Rs8,075/ton.
Sarda has recently received consent to operate the third FBC boiler installed at Raipur
plant, which will take its captive power generating capacity to 81.5MW. We expect
faster ramp up of the power unit, enabling captive power for full operations at Raipur
even at higher capacity utilization.
The Rs5.5b ferro project at Vizag is progressing on schedule to get commissioned by
1QFY13. Production capacity would be 125ktpa, with 2*33 MVA submerged arc
furnace and 80MW CPP.
Pellet plant failed to operate for too long; FY12E EPS cut 30%; downgrade
to Neutral
Material and labor movement at the naxal-affected mine located at Rajnandgaon had
started in 2QFY11 and the management was confident about re-starting mining
operations in 2HFY11. However, the operational difficulties seem to overweigh the
company's efforts in starting mining. We have not factored in any captive iron ore
production in FY11.
The 0.6mtpa pellet plant continues to operate at lower capacity utilization even after
undergoing modifications to accommodate high moisture fines during 2QFY11. It
produced 45,848tons of pellets in 3QFY11. The grinding unit is expected to undergo
further technical modification in the next few months, which will limit the ramp-up of
capacity utilization.
The pellet plant has failed to operate satisfactorily even after two years of operations
and numerous modifications; the company has paid dearly by way of lost opportunity.
The spread between cost of pellet and market price is too big to ignore operational
failure for such a long period. This has raised concerns on the management's operational
and execution skills.
We have cut our FY11E EPS by 38% to Rs11.6 to factor the lower than expected
results for 3QFY11. We have also incorporated lower pellet production and higher
raw material costs in our FY12 estimates. We have cut FY12E EPS by 30% to Rs25.3
from Rs36.5 earlier. The stock is trading at 9.1x FY12E EPS and an EV of 9.1x
FY12E EBITDA. We downgrade the stock to Neutral.
Sarda Energy and Minerals (SEML) produces steel via
sponge iron route, having 240ktpa of crude steel capacity
and 360ktpa of sponge at Siltara, Raipur (Chhattisgarh). It
is also one of the largest ferroalloy producers, with a
capacity of 72ktpa and 81.5MW of captive power plant.
The company has been allotted captive iron ore as well as
coal mines. Its recently commissioned 0.6mtpa pellet plant
converts iron ore fines into pellets, thus reducing lump
requirement. SEML is a play on sponge iron prices and
power. There will be significant savings in the cost of
production of steel post starting of captive mines.
Key investment arguments
Pellet production is expected to ramp up faster in FY12,
as the plant is stabilized post technical modifications.
Operations at captive iron ore mine are also expected
to restart in FY12.
SEML is investing Rs5.5b into a Greenfield ferro project
(125ktpa with 2*33 MVA submerged arc furnace and
80MW CPP) at Vizag. The project is expected to get
commissioned by 1QFY13.
Key investment risks
Earnings are highly leveraged to ferroalloy and steel
prices.
Recent developments
The Committee of Directors has allotted 1.8m equity
shares of Rs10 each on preferential basis to Asia
Minerals Limited, Hongkong, at a premium of Rs500/
share on 31 December 2010.
Valuation and view
The stock trades at 9.1x FY12E EPS and an EV of
9.1x FY12E EBITDA.
Sector view
Indian steel demand is expected to grow at 10-12%
over FY10-12, driven by planned infrastructure
investment by the government and a rebound of
industrial capex. Industrial production has started
growing in double digits due to the economic recovery
and a boost from stimulus packages. Auto and white
goods demand has started growing in double digits.
Large power capacity addition will drive industrial
production further. According to WSA, Indian steel
demand is expected to grow 13.6% in 2011. We remain
positive about domestic steel companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M.Cap. (US$ m) 176.7
Sarda Energy and Mineral's standalone adjusted PAT for 3QFY11 was Rs55m (down 67% YoY) v/s a loss of Rs4m
in 2QFY11.
Net sales increased 7% QoQ to Rs2.1b. Steel division revenue grew 10% QoQ to Rs1.1b due to higher steel
volumes. The company produced more steel and sold less sponge iron during the quarter. Saleable steel product
volumes grew 49% QoQ to 25,525tons while average realization declined 2% QoQ to Rs26,750/ton. Sponge realization
was up 7% QoQ at Rs16,900/ton.
Ferro alloy division revenue grew 2% QoQ to Rs1.05b on higher volumes. Ferro alloy sales tonnage increased 8%
QoQ to 16,441tons while realization declined 6% QoQ to Rs59,783/ton.
EBITDA increased 27% QoQ to Rs205m, well below our estimate of Rs378m due to poor performance from ferro
alloy division. Steel division EBIT increased 3x QoQ to Rs110m, while ferro alloy division EBIT declined 38% QoQ to
Rs85m. The sharp decline in ferro alloy EBIT was due to decline in realization and higher raw material prices. Landed
iron ore cost also increased 7% QoQ to Rs8,075/ton.
Pellet plant failed to operate for too long; FY12E EPS cut 30%; downgrade to Neutral
The 0.6mtpa pellet plant has failed to operate satisfactorily even after two years of operations and numerous
modifications; the company has paid dearly by way of lost opportunity. The spread between cost of pellet and market
price is too big to ignore operational failure for such a long period. The plant produced 45,848tons of pellets in
3QFY11. Captive naxal-affected mine located at Rajnandgaon has not yet re-started.
We have cut our FY11E EPS by 38% to Rs11.6 to factor the lower than expected results for 3QFY11. We have also
incorporated lower pellet production and higher raw material costs in our FY12 estimates. We have cut FY12E EPS
by 30% to Rs25.3 from Rs36.5 earlier. The stock is trading at 9.1x FY12E EPS and an EV of 9.1x FY12E EBITDA
Sarda Energy and Mineral's standalone adjusted PAT for 3QFY11 was Rs55m (down
67% YoY) v/s a loss of Rs4m in 2QFY11. Reported standalone PAT of Rs63.4m included
Rs12m of forex gains.
Revenue grew 7% QoQ due to higher steel volumes; ferro alloy realization
declined 6% QoQ
Net sales increased 7% QoQ to Rs2.1b. Steel division revenue grew 10% QoQ to
Rs1.1b due to higher steel volumes. The company produced more steel and sold less
sponge iron during the quarter. Saleable steel product (billets and wire rods) volumes
grew 49% QoQ to 25,525tons while average realization declined 2% QoQ to Rs26,750/
ton.
Sponge iron production declined 13% QoQ to 51,466tons while steel production was
up 66% QoQ to 39,523tons. Ferro alloy production increased 1% QoQ to 16,195tons.
Sponge iron sales volumes declined 27% QoQ to 23,937tons, as the company produced
more steel. Sponge realization was up 7% QoQ at Rs16,900/ton.
Coal mining at Karwahi open cast mine is ramping up in line with the requirement of
360ktpa sponge iron facilities. The company produced 106,037tons of coal during
3QFY11.
Ferro alloy division revenue grew 2% QoQ to Rs1.05b on higher volumes. Ferro alloy
sales tonnage increased 8% QoQ to 16,441tons while realization declined 6% QoQ to
Rs59,783/ton.
The company sold less power, as power rates remain subdued and decided to produce
steel. Sales volumes declined 83% YoY to 6.55MU.
Raw material cost inflation continues to perturb; 20MW CPP at Raipur gets
statutory clearances
EBITDA increased 27% QoQ to Rs205m, well below our estimate of Rs378m due to
poor performance from ferroalloy division.
Steel division EBIT increased 3x QoQ to Rs110m, while ferro alloy division EBIT
declined 38% QoQ to Rs85m. The sharp decline in ferroalloy EBIT was due to decline
in realization and higher raw material prices. Landed iron ore cost also increased 7%
QoQ to Rs8,075/ton.
Sarda has recently received consent to operate the third FBC boiler installed at Raipur
plant, which will take its captive power generating capacity to 81.5MW. We expect
faster ramp up of the power unit, enabling captive power for full operations at Raipur
even at higher capacity utilization.
The Rs5.5b ferro project at Vizag is progressing on schedule to get commissioned by
1QFY13. Production capacity would be 125ktpa, with 2*33 MVA submerged arc
furnace and 80MW CPP.
Pellet plant failed to operate for too long; FY12E EPS cut 30%; downgrade
to Neutral
Material and labor movement at the naxal-affected mine located at Rajnandgaon had
started in 2QFY11 and the management was confident about re-starting mining
operations in 2HFY11. However, the operational difficulties seem to overweigh the
company's efforts in starting mining. We have not factored in any captive iron ore
production in FY11.
The 0.6mtpa pellet plant continues to operate at lower capacity utilization even after
undergoing modifications to accommodate high moisture fines during 2QFY11. It
produced 45,848tons of pellets in 3QFY11. The grinding unit is expected to undergo
further technical modification in the next few months, which will limit the ramp-up of
capacity utilization.
The pellet plant has failed to operate satisfactorily even after two years of operations
and numerous modifications; the company has paid dearly by way of lost opportunity.
The spread between cost of pellet and market price is too big to ignore operational
failure for such a long period. This has raised concerns on the management's operational
and execution skills.
We have cut our FY11E EPS by 38% to Rs11.6 to factor the lower than expected
results for 3QFY11. We have also incorporated lower pellet production and higher
raw material costs in our FY12 estimates. We have cut FY12E EPS by 30% to Rs25.3
from Rs36.5 earlier. The stock is trading at 9.1x FY12E EPS and an EV of 9.1x
FY12E EBITDA. We downgrade the stock to Neutral.
Sarda Energy and Minerals (SEML) produces steel via
sponge iron route, having 240ktpa of crude steel capacity
and 360ktpa of sponge at Siltara, Raipur (Chhattisgarh). It
is also one of the largest ferroalloy producers, with a
capacity of 72ktpa and 81.5MW of captive power plant.
The company has been allotted captive iron ore as well as
coal mines. Its recently commissioned 0.6mtpa pellet plant
converts iron ore fines into pellets, thus reducing lump
requirement. SEML is a play on sponge iron prices and
power. There will be significant savings in the cost of
production of steel post starting of captive mines.
Key investment arguments
Pellet production is expected to ramp up faster in FY12,
as the plant is stabilized post technical modifications.
Operations at captive iron ore mine are also expected
to restart in FY12.
SEML is investing Rs5.5b into a Greenfield ferro project
(125ktpa with 2*33 MVA submerged arc furnace and
80MW CPP) at Vizag. The project is expected to get
commissioned by 1QFY13.
Key investment risks
Earnings are highly leveraged to ferroalloy and steel
prices.
Recent developments
The Committee of Directors has allotted 1.8m equity
shares of Rs10 each on preferential basis to Asia
Minerals Limited, Hongkong, at a premium of Rs500/
share on 31 December 2010.
Valuation and view
The stock trades at 9.1x FY12E EPS and an EV of
9.1x FY12E EBITDA.
Sector view
Indian steel demand is expected to grow at 10-12%
over FY10-12, driven by planned infrastructure
investment by the government and a rebound of
industrial capex. Industrial production has started
growing in double digits due to the economic recovery
and a boost from stimulus packages. Auto and white
goods demand has started growing in double digits.
Large power capacity addition will drive industrial
production further. According to WSA, Indian steel
demand is expected to grow 13.6% in 2011. We remain
positive about domestic steel companies.
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