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Coal mining to drive growth
Monnet Ispat operates a 0.8mtpa sponge iron plant, a 0.3mtpa steel plant and a
150MW captive power plant (CPP) in the mineral rich state of Chhattisgarh. It is
setting up a 1.5mtpa integrated steel project at Raigarh and is also venturing into
the power generation business through a subsidiary to set up 1,050MW of IPP at
Angul, Orissa.
0.5mtpa of its total DRI capacity and 90MW CPP is strategically located close to
its coal mines in Raigarh. Rest of its DRI facilities is located at Raipur. It produces
~1m ton of coal from its existing underground mine at Mand Raigarh Coalfields,
which improves its overall margins in the DRI as well as power business.
Monnet is setting up a 1.5mtpa integrated steel project in Raigarh at a capex of
Rs25b, which includes a 0.6mtpa blast furnace, 1.2mtpa pellet plant, 0.9mtpa
sinter plant, 0.4mtpa coke oven plant, 0.75mtpa finished mills and 80MW CPP.
Monnet currently sells ~2/3rd of the power it generates at merchant rates. In the
first phase of expansion, it plans an 80MW CPP, to be commissioned in 1QFY12.
This will drive earnings in the near term.
The steel project is expected to start commissioning from September 2011 starting
with blast furnace and steel melting shop followed by finished mills. Timely
commissioning of the pellet plant will improve margins.
Captive iron ore mine at Rameshwaram Steel and Power (97% subsidiary) is
expected to start operations by 1QFY13. The mine has high quality reserves (30m
tons; Fe grade 64-66) with annual extraction capacity of 0.8mtpa. Land acquisition
is under process and clearance from the Ministry of Environment and Forests is
expected in 2QFY11.
Monnet has received environment clearance for two of its coal mines recently -
Utkal B2 and Mandakini Block in Orissa. Last stage of forest clearance is expected
soon and mining operations can be started immediately at the Utkal B2 mine, as
it is an open cast mine.
Monnet is also venturing into the power generation business by setting up a pithead
1,050MW power project near its coal block at Angul, Orissa through its 87.5%
subsidiary, Monnet Power Company Limited. Financial closure for Rs50b capex
has been achieved, while ~85% of land has been already acquired. Order for the
BTG package was placed with BHEL in June 2009. First phase of the project
(525MW) is expected to be commissioned by January 2013. PPA has been signed
with PTC for 400MW and with the state for 300MW. Balance 32% power will be
sold in the merchant market. This project is expected to have high profitability due
to low cost structure.
In the longer term, Monnet plans to augment power generation capacity to
3,000MW, which will include 600MW unit at the existing 1,050MW project.
Monnet has recently merged Mounteverest Trading and Investment Company
(promoter group company involved in acquisition of Orissa Sponge Iron and Steel
Limited) with itself. Thus, Rs3.5b investment in Orissa Sponge has been brought
to the books of Monnet Ispat. Shareholders of Mounteverest have received 4.7m
shares i.e. ~7% of Monnet's expanded equity.
Orissa Sponge Iron has iron ore and coal mines, with reserves of 120m tons and
125m tons, respectively in Orissa. It has undertaken Rs12b capex to expand steel
making capacity to 1mtpa. Blast furnace capacity of 0.6mtpa has been ordered
though some other facilities are yet to be ordered.
During 9MFY11, 4.7m shares were issued on conversion of warrants, 4.7m shares
on merger of Mounteverest and 2.2m shares on conversion of FCCB. As a result,
paid up number of shares has increased from 52.3m to 63.9m. Promoter holding has
increased from 44.3% to 51.1%.
We expect Monnet's earnings to grow at a CAGR of 12% over FY10-13. We value
the stock at Rs510 based on 6.5x FY12E core business EBITDA, Rs23b for its
equity stake of 87.5% in Monnet Power (1,050MW project) and Rs4.2b for Orissa
Sponge. The stock is trading at 9.6x FY12E EPS and an EV of 11.8x FY12E EBITDA.
Though our target price still does not fully capture the value of its coal mining assets,
there remains project execution risk. Maintain Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal mining to drive growth
Monnet Ispat operates a 0.8mtpa sponge iron plant, a 0.3mtpa steel plant and a
150MW captive power plant (CPP) in the mineral rich state of Chhattisgarh. It is
setting up a 1.5mtpa integrated steel project at Raigarh and is also venturing into
the power generation business through a subsidiary to set up 1,050MW of IPP at
Angul, Orissa.
0.5mtpa of its total DRI capacity and 90MW CPP is strategically located close to
its coal mines in Raigarh. Rest of its DRI facilities is located at Raipur. It produces
~1m ton of coal from its existing underground mine at Mand Raigarh Coalfields,
which improves its overall margins in the DRI as well as power business.
Monnet is setting up a 1.5mtpa integrated steel project in Raigarh at a capex of
Rs25b, which includes a 0.6mtpa blast furnace, 1.2mtpa pellet plant, 0.9mtpa
sinter plant, 0.4mtpa coke oven plant, 0.75mtpa finished mills and 80MW CPP.
Monnet currently sells ~2/3rd of the power it generates at merchant rates. In the
first phase of expansion, it plans an 80MW CPP, to be commissioned in 1QFY12.
This will drive earnings in the near term.
The steel project is expected to start commissioning from September 2011 starting
with blast furnace and steel melting shop followed by finished mills. Timely
commissioning of the pellet plant will improve margins.
Captive iron ore mine at Rameshwaram Steel and Power (97% subsidiary) is
expected to start operations by 1QFY13. The mine has high quality reserves (30m
tons; Fe grade 64-66) with annual extraction capacity of 0.8mtpa. Land acquisition
is under process and clearance from the Ministry of Environment and Forests is
expected in 2QFY11.
Monnet has received environment clearance for two of its coal mines recently -
Utkal B2 and Mandakini Block in Orissa. Last stage of forest clearance is expected
soon and mining operations can be started immediately at the Utkal B2 mine, as
it is an open cast mine.
Monnet is also venturing into the power generation business by setting up a pithead
1,050MW power project near its coal block at Angul, Orissa through its 87.5%
subsidiary, Monnet Power Company Limited. Financial closure for Rs50b capex
has been achieved, while ~85% of land has been already acquired. Order for the
BTG package was placed with BHEL in June 2009. First phase of the project
(525MW) is expected to be commissioned by January 2013. PPA has been signed
with PTC for 400MW and with the state for 300MW. Balance 32% power will be
sold in the merchant market. This project is expected to have high profitability due
to low cost structure.
In the longer term, Monnet plans to augment power generation capacity to
3,000MW, which will include 600MW unit at the existing 1,050MW project.
Monnet has recently merged Mounteverest Trading and Investment Company
(promoter group company involved in acquisition of Orissa Sponge Iron and Steel
Limited) with itself. Thus, Rs3.5b investment in Orissa Sponge has been brought
to the books of Monnet Ispat. Shareholders of Mounteverest have received 4.7m
shares i.e. ~7% of Monnet's expanded equity.
Orissa Sponge Iron has iron ore and coal mines, with reserves of 120m tons and
125m tons, respectively in Orissa. It has undertaken Rs12b capex to expand steel
making capacity to 1mtpa. Blast furnace capacity of 0.6mtpa has been ordered
though some other facilities are yet to be ordered.
During 9MFY11, 4.7m shares were issued on conversion of warrants, 4.7m shares
on merger of Mounteverest and 2.2m shares on conversion of FCCB. As a result,
paid up number of shares has increased from 52.3m to 63.9m. Promoter holding has
increased from 44.3% to 51.1%.
We expect Monnet's earnings to grow at a CAGR of 12% over FY10-13. We value
the stock at Rs510 based on 6.5x FY12E core business EBITDA, Rs23b for its
equity stake of 87.5% in Monnet Power (1,050MW project) and Rs4.2b for Orissa
Sponge. The stock is trading at 9.6x FY12E EPS and an EV of 11.8x FY12E EBITDA.
Though our target price still does not fully capture the value of its coal mining assets,
there remains project execution risk. Maintain Neutral.
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