Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution disappointing
Sarda Energy (SEML) is a Raipur-based ferroalloy cum steel producer, with a rich
mineral portfolio. It uses the DRI route to produce steel and has capacities of
360ktpa sponge, 240ktpa steel and 72ktpa of ferroalloys. It also has rich reserves
of coal, iron and manganese ore allotted across India. However, it currently sources
only coal from its captive mines.
Its captive iron ore mine in the Rajnandgaon district has not been operational for
the last two years, as the area is impacted by naxalite operations. Though material
and labor movement in the area began in early 2QFY11, its mines are still closed
due to operational difficulties. The hardening iron ore prices in the last two years
have dented SEML's performance.
To utilize its captive iron ore fines, SEML commissioned its 0.6mtpa pellet plant in
FY10. However, the pellet plant continues to operate at low capacity utilization
even after undergoing various technical modifications in the recent quarters. The
ramp up of pellet production is not likely to happen in the next few months. SEML
has paid dearly by the way of lost opportunity over the last few quarters. The
spread between cost of pellet and market price is too large to ignore operational
failure for such a long period. We model in slower ramp-up of the pellet plant in our
estimates (300k tons in FY12 and 360k tons in FY13).
The captive coal mine at Karwahi, Raigarh continues to operate satisfactorily, with
298k tons of coal production in 9MFY11.
SEML has recently received consent to operate the third FBC boiler installed at
Raipur, which has taken its captive power generating capacity to 81.5MW. We
expect faster ramp-up of the power unit, enabling captive power for full operations.
Power generation is expected to grow at a CAGR of 14% to 516MU over FY11-13.
SEML is setting up a greenfield ferroalloy project (125ktpa with 2x33MVA
submerged arc furnace and 80MW CPP) at Vizag at a capex of Rs5.5b. This
project is progressing on schedule to get commissioned by 1QFY13. The company
has already tied up entire debt for the project and has invested Rs1b in terms of
equity (out of Rs1.37b). BTG orders for the 80MW CPP have been placed and
equipment has started arriving at the site.
SEML is working on numerous projects such as manganese ore mining in Goa,
over 1,800MW of hydro and thermal power projects in Chhattisgarh, and 1.1mtpa
steel project at Raipur, which are in different stages. We expect these projects to
contribute significantly to the consolidated earnings over the next 5-10 years.
Leverage is likely to remain on the higher side, as the company is investing Rs1.5b-
2b every year on a number of projects that it has undertaken.
SEML has received Rs920m of preferential equity investment from Asia Minerals,
Hong Kong. This will be invested in its ongoing expansion projects. SEML has
allotted 1.8m shares (at a premium of Rs500/share), diluting equity by 5.3% to
358m in 3QFY11.
Faster ramp-up of pellet production, re-starting of iron ore mine and timely
completion of Vizag ferro project will drive earnings and help to reduce leverage.
However, in the near term, execution risk remains. Though it has a very rich mineral
portfolio, raw material integration is likely to be lower in the near term. The stock
is trading at 7.7x FY12E EPS and an EV of 8.2x FY12E EBITDA. Maintain Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution disappointing
Sarda Energy (SEML) is a Raipur-based ferroalloy cum steel producer, with a rich
mineral portfolio. It uses the DRI route to produce steel and has capacities of
360ktpa sponge, 240ktpa steel and 72ktpa of ferroalloys. It also has rich reserves
of coal, iron and manganese ore allotted across India. However, it currently sources
only coal from its captive mines.
Its captive iron ore mine in the Rajnandgaon district has not been operational for
the last two years, as the area is impacted by naxalite operations. Though material
and labor movement in the area began in early 2QFY11, its mines are still closed
due to operational difficulties. The hardening iron ore prices in the last two years
have dented SEML's performance.
To utilize its captive iron ore fines, SEML commissioned its 0.6mtpa pellet plant in
FY10. However, the pellet plant continues to operate at low capacity utilization
even after undergoing various technical modifications in the recent quarters. The
ramp up of pellet production is not likely to happen in the next few months. SEML
has paid dearly by the way of lost opportunity over the last few quarters. The
spread between cost of pellet and market price is too large to ignore operational
failure for such a long period. We model in slower ramp-up of the pellet plant in our
estimates (300k tons in FY12 and 360k tons in FY13).
The captive coal mine at Karwahi, Raigarh continues to operate satisfactorily, with
298k tons of coal production in 9MFY11.
SEML has recently received consent to operate the third FBC boiler installed at
Raipur, which has taken its captive power generating capacity to 81.5MW. We
expect faster ramp-up of the power unit, enabling captive power for full operations.
Power generation is expected to grow at a CAGR of 14% to 516MU over FY11-13.
SEML is setting up a greenfield ferroalloy project (125ktpa with 2x33MVA
submerged arc furnace and 80MW CPP) at Vizag at a capex of Rs5.5b. This
project is progressing on schedule to get commissioned by 1QFY13. The company
has already tied up entire debt for the project and has invested Rs1b in terms of
equity (out of Rs1.37b). BTG orders for the 80MW CPP have been placed and
equipment has started arriving at the site.
SEML is working on numerous projects such as manganese ore mining in Goa,
over 1,800MW of hydro and thermal power projects in Chhattisgarh, and 1.1mtpa
steel project at Raipur, which are in different stages. We expect these projects to
contribute significantly to the consolidated earnings over the next 5-10 years.
Leverage is likely to remain on the higher side, as the company is investing Rs1.5b-
2b every year on a number of projects that it has undertaken.
SEML has received Rs920m of preferential equity investment from Asia Minerals,
Hong Kong. This will be invested in its ongoing expansion projects. SEML has
allotted 1.8m shares (at a premium of Rs500/share), diluting equity by 5.3% to
358m in 3QFY11.
Faster ramp-up of pellet production, re-starting of iron ore mine and timely
completion of Vizag ferro project will drive earnings and help to reduce leverage.
However, in the near term, execution risk remains. Though it has a very rich mineral
portfolio, raw material integration is likely to be lower in the near term. The stock
is trading at 7.7x FY12E EPS and an EV of 8.2x FY12E EBITDA. Maintain Neutral.
No comments:
Post a Comment