Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sarda Energy and Minerals (SEML) reported disappointing set of numbers for
3QFY2011. While net sales increased 38.9% yoy to `214cr, adjusted net profit
declined by 59.7% yoy to `5cr. We remain positive on SEML and recommend a
Buy on the stock.
Margins impacted by increase in raw material price: EBITDA margin declined by a
substantial 1,070bp yoy mainly on account of the increase in the raw material
costs during the quarter. Raw material cost, as a percentage of net sales,
increased to 69.0% (66.7%), while other expenditure accounted for 16.4% (8.7%)
of net sales in 3QFY2011. Consequently, net profit margin (NPM) declined by
600bp yoy during the quarter.
Outlook and valuation: We continue to believe SEML is well poised to benefit
from: a) backward integration into coal and iron ore, b) commercial production
of pellets, and c) increased power and ferro alloy production. We expect full
benefits of captive coal to reflect in FY2012E. Moreover, an uptick in ferro alloy
and pellet prices coupled with increase in power generation would boost
FY2012E EBITDA. A key catalyst for the stock would be re-commencement of its
iron ore operations at Rajnandgaon. Owing to the recent decline in the prices we
recommend a Buy on the stock, with a Target Price of `294, based on 5.0x
FY2012E EV/EBITDA.
Investment rationale
Captive iron ore mine expected to re-start soon: In the recent past, the company
has not been able to procure iron ore from its captive mine at Rajnandgaon on
account of Naxal activity in the region. However, as per the company the mine
would restart during 4QFY2011, which should result in savings in costs going
forward. We expect SEML to earn incremental EBITDA of `36cr in FY2012, on
account of securing coal from its captive mines.
Pellet production to lower raw material costs: SEML started commercial production
of its 0.6mn tonne pellet plant in April 2010 and over the last six months the
structural problems have also been successfully resolved. Moreover, domestic
prices of iron ore and pellets have also risen by 20-30% in the past four months.
Hence, we expect significant cost savings for the company on account of captive
pellet production.
Power capacity to increase: SEML is expanding its power capacity by: a) 50% to
90MW at its Raipur plant, and b) setting up an 80MW plant near its coal mine. We
have not factored in these expansions in our estimates, as they are subject to
regulatory approvals. However, successful commissioning of these projects could
pose an upside risk to our target price and estimates.
Outlook and valuation
We have revised upwards our revenue estimates for FY2011 and FY2012 on the
back of increase in product prices and higher realisations thereof. However, we
have lowered our profitability estimates for FY2011 and FY2012 to account for the
increase in raw material prices. We have marginally lowered our debt estimates for
FY2012 on account of the preferential allotment of `90cr by the company.
We continue to believe that SEML is well-poised to benefit from: a) backward
integration into coal and iron ore, b) commercial production of pellets, and c)
increased power and ferro alloy production. We expect full benefits of captive coal
to reflect in FY2012. Moreover, increase in the ferro alloy and pellet prices coupled
with higher power generation would boost the company’s FY2012E EBITDA. A key
catalyst for the stock would be re-starting of its iron ore operations at
Rajnandgaon. Given the recent decline in the price, we recommend a Buy on the
stock, with a Target Price of `294, valuing the stock at 5.0x FY2012E EV/EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sarda Energy and Minerals– 3QFY2011 Result Update
Angel Broking maintains a Buy on Sarda Energy and Minerals with a Target Price of Rs. 294.
Sarda Energy and Minerals (SEML) reported disappointing set of numbers for
3QFY2011. While net sales increased 38.9% yoy to `214cr, adjusted net profit
declined by 59.7% yoy to `5cr. We remain positive on SEML and recommend a
Buy on the stock.
Margins impacted by increase in raw material price: EBITDA margin declined by a
substantial 1,070bp yoy mainly on account of the increase in the raw material
costs during the quarter. Raw material cost, as a percentage of net sales,
increased to 69.0% (66.7%), while other expenditure accounted for 16.4% (8.7%)
of net sales in 3QFY2011. Consequently, net profit margin (NPM) declined by
600bp yoy during the quarter.
Outlook and valuation: We continue to believe SEML is well poised to benefit
from: a) backward integration into coal and iron ore, b) commercial production
of pellets, and c) increased power and ferro alloy production. We expect full
benefits of captive coal to reflect in FY2012E. Moreover, an uptick in ferro alloy
and pellet prices coupled with increase in power generation would boost
FY2012E EBITDA. A key catalyst for the stock would be re-commencement of its
iron ore operations at Rajnandgaon. Owing to the recent decline in the prices we
recommend a Buy on the stock, with a Target Price of `294, based on 5.0x
FY2012E EV/EBITDA.
Investment rationale
Captive iron ore mine expected to re-start soon: In the recent past, the company
has not been able to procure iron ore from its captive mine at Rajnandgaon on
account of Naxal activity in the region. However, as per the company the mine
would restart during 4QFY2011, which should result in savings in costs going
forward. We expect SEML to earn incremental EBITDA of `36cr in FY2012, on
account of securing coal from its captive mines.
Pellet production to lower raw material costs: SEML started commercial production
of its 0.6mn tonne pellet plant in April 2010 and over the last six months the
structural problems have also been successfully resolved. Moreover, domestic
prices of iron ore and pellets have also risen by 20-30% in the past four months.
Hence, we expect significant cost savings for the company on account of captive
pellet production.
Power capacity to increase: SEML is expanding its power capacity by: a) 50% to
90MW at its Raipur plant, and b) setting up an 80MW plant near its coal mine. We
have not factored in these expansions in our estimates, as they are subject to
regulatory approvals. However, successful commissioning of these projects could
pose an upside risk to our target price and estimates.
Outlook and valuation
We have revised upwards our revenue estimates for FY2011 and FY2012 on the
back of increase in product prices and higher realisations thereof. However, we
have lowered our profitability estimates for FY2011 and FY2012 to account for the
increase in raw material prices. We have marginally lowered our debt estimates for
FY2012 on account of the preferential allotment of `90cr by the company.
We continue to believe that SEML is well-poised to benefit from: a) backward
integration into coal and iron ore, b) commercial production of pellets, and c)
increased power and ferro alloy production. We expect full benefits of captive coal
to reflect in FY2012. Moreover, increase in the ferro alloy and pellet prices coupled
with higher power generation would boost the company’s FY2012E EBITDA. A key
catalyst for the stock would be re-starting of its iron ore operations at
Rajnandgaon. Given the recent decline in the price, we recommend a Buy on the
stock, with a Target Price of `294, valuing the stock at 5.0x FY2012E EV/EBITDA.
No comments:
Post a Comment