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Volume delivered, but margin disappoints;
Downgrade to ‘HOLD’
Despite 34% YoY growth in consol. revenue to Rs8.7bn on
volume growth and better realisation, Usha Martin's (USM)
EBITDA grew at a subdued 16% YoY to Rs1.6bn as OPM
contracted by 283bps to 18.5%. Net profit declined 48% YoY to
Rs362mn on increased interest, depreciation expenses and
higher tax rate. EPS for FY11 at Rs4.5 declined 18.7% YoY.
Volume delivered: USM’s Q4 sales volume grew 29% YoY to 142kt
(incl. 12kt from Agra) on higher billet output (up 30% YoY to 137kt).
... however, margin disappoints: Despite volume growth, increased
blended realisation (up 7% YoY to Rs51/kg) and captive power &
coal benefits, USM’s standalone OPM contracted 85bps YoY to
17.7%. Sequential expansion of 184bps is also lower than our
estimates on increased RM cost (despite higher usage of captive
coal) & higher other expenses (19.3% of sales vs 16.9% in Q3FY11).
Captive resources: USM mined 108kt of captive coal (120kt in Q1,
60kt in Q3), while shipping to the plant increased to 100kt vs 25kt in
Q3. Iron ore output declined 21% YoY to 420kt.
Performance of overseas subsidiaries: EBITDA of overseas subs.
at Rs326mn declined 22% YoY, but grew 57% QoQ on higher volume
despite lower realisation. OPM expanded 730bps QoQ to 22.9%.
Leverage: USM has net debt of Rs20bn with net D/E of 1.1x.
Capex status: USM is incurring a capex of Rs12bn (financial closure
achieved) over 3yrs for further integration and value-addition.
VALUATIONS AND RECOMMENDATION
Despite integration from captive resources to value-added products,
USM’s OPM has not expanded over years and at 19% for FY11, is
lower than even a few non-integrated steelmakers in India. FY12E
volume guidance of 680kt (68% CU) also leaves a lot to desire on
the asset utilisation front and may surprise on the downside if the
one-offs continue to impact performance. We revise our FY12E to
factor in lower volume and margin & introduce FY13 estimates.
At 4.1x FY12E EV/EBITDA, there is little margin for operational
underperformance to continue. We downgrade the stock to ‘HOLD’
with a revised target price of Rs69 (4.5x FY12E EV/EBITDA)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Volume delivered, but margin disappoints;
Downgrade to ‘HOLD’
Despite 34% YoY growth in consol. revenue to Rs8.7bn on
volume growth and better realisation, Usha Martin's (USM)
EBITDA grew at a subdued 16% YoY to Rs1.6bn as OPM
contracted by 283bps to 18.5%. Net profit declined 48% YoY to
Rs362mn on increased interest, depreciation expenses and
higher tax rate. EPS for FY11 at Rs4.5 declined 18.7% YoY.
Volume delivered: USM’s Q4 sales volume grew 29% YoY to 142kt
(incl. 12kt from Agra) on higher billet output (up 30% YoY to 137kt).
... however, margin disappoints: Despite volume growth, increased
blended realisation (up 7% YoY to Rs51/kg) and captive power &
coal benefits, USM’s standalone OPM contracted 85bps YoY to
17.7%. Sequential expansion of 184bps is also lower than our
estimates on increased RM cost (despite higher usage of captive
coal) & higher other expenses (19.3% of sales vs 16.9% in Q3FY11).
Captive resources: USM mined 108kt of captive coal (120kt in Q1,
60kt in Q3), while shipping to the plant increased to 100kt vs 25kt in
Q3. Iron ore output declined 21% YoY to 420kt.
Performance of overseas subsidiaries: EBITDA of overseas subs.
at Rs326mn declined 22% YoY, but grew 57% QoQ on higher volume
despite lower realisation. OPM expanded 730bps QoQ to 22.9%.
Leverage: USM has net debt of Rs20bn with net D/E of 1.1x.
Capex status: USM is incurring a capex of Rs12bn (financial closure
achieved) over 3yrs for further integration and value-addition.
VALUATIONS AND RECOMMENDATION
Despite integration from captive resources to value-added products,
USM’s OPM has not expanded over years and at 19% for FY11, is
lower than even a few non-integrated steelmakers in India. FY12E
volume guidance of 680kt (68% CU) also leaves a lot to desire on
the asset utilisation front and may surprise on the downside if the
one-offs continue to impact performance. We revise our FY12E to
factor in lower volume and margin & introduce FY13 estimates.
At 4.1x FY12E EV/EBITDA, there is little margin for operational
underperformance to continue. We downgrade the stock to ‘HOLD’
with a revised target price of Rs69 (4.5x FY12E EV/EBITDA)
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