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Dismal performance…
HEG reported its Q4FY11 results that came lower than our estimates.
Revenues for the quarter stood at | 282 crore, down ~ 16% YoY and
~9% QoQ as against our expectation of | 340 crore. The de-growth in
topline can be attributed to lower realisations in both segments (graphite
and power) coupled with lower sales volumes, due to lower utilisation,
which for the quarter stood at ~82% as compared to our expectation of
90%. The EBITDA contracted ~22% YoY and ~16% QoQ due to lower
realisations and higher cost pressure (increase in staff cost, other
expense and power & fuel). Despite a decline in the interest cost (by
~15% YoY), the PAT fell ~13% YoY and ~10% QoQ to | 34.4 crore
against our expectation | 43 crore. In CY10, global steel demand grew
12%. However, going forward, in CY11 steel production is expected to
grow at a slower pace of ~5%. In CY10, steel production through the EAF
route has been close to 2007 levels and is expected to rise further, going
ahead, implying higher demand for graphite electrodes. On the cost front,
needle coke contract price negotiations have settled at slightly lower
prices compared to CY10. However, rising domestic input costs would
put margins under pressure.
�� Capacity expansion well on schedule
Capacity expansion from 66,000 TPA to 80,000 TPA, which
commenced in March 2010, is on schedule and is expected to be
completed within timelines. The first phase of capacity expansion
has commenced operations and full capacity commercial
production is expected to commence from Q3FY12.
Valuation
At the CMP of | 224, the stock is trading at FY12E P/E of 7.6x and FY12E
EV/EBITDA of 6.2x. We value the stock at a 15% discount to the global
average of 6.1x CY12E EV/EBITDA, thus arriving at a revised target price
of | 220/share and assign a HOLD rating to the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dismal performance…
HEG reported its Q4FY11 results that came lower than our estimates.
Revenues for the quarter stood at | 282 crore, down ~ 16% YoY and
~9% QoQ as against our expectation of | 340 crore. The de-growth in
topline can be attributed to lower realisations in both segments (graphite
and power) coupled with lower sales volumes, due to lower utilisation,
which for the quarter stood at ~82% as compared to our expectation of
90%. The EBITDA contracted ~22% YoY and ~16% QoQ due to lower
realisations and higher cost pressure (increase in staff cost, other
expense and power & fuel). Despite a decline in the interest cost (by
~15% YoY), the PAT fell ~13% YoY and ~10% QoQ to | 34.4 crore
against our expectation | 43 crore. In CY10, global steel demand grew
12%. However, going forward, in CY11 steel production is expected to
grow at a slower pace of ~5%. In CY10, steel production through the EAF
route has been close to 2007 levels and is expected to rise further, going
ahead, implying higher demand for graphite electrodes. On the cost front,
needle coke contract price negotiations have settled at slightly lower
prices compared to CY10. However, rising domestic input costs would
put margins under pressure.
�� Capacity expansion well on schedule
Capacity expansion from 66,000 TPA to 80,000 TPA, which
commenced in March 2010, is on schedule and is expected to be
completed within timelines. The first phase of capacity expansion
has commenced operations and full capacity commercial
production is expected to commence from Q3FY12.
Valuation
At the CMP of | 224, the stock is trading at FY12E P/E of 7.6x and FY12E
EV/EBITDA of 6.2x. We value the stock at a 15% discount to the global
average of 6.1x CY12E EV/EBITDA, thus arriving at a revised target price
of | 220/share and assign a HOLD rating to the stock.
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