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Backward integration initiatives to aid margin growth: ECL is
on track to have an integrated business model in place through
a) backward integration initiatives led by the allocation of mines
and b) focus on beefing up its logistic infrastructure to further
reduce costs. ECL was granted mining lease for the Parbatpur
coking coal mine (est. reserves of 231.2mn tonnes) in Jharkhand
in January 2008. For its iron ore requirements, ECL is in the
process of acquiring the mining lease for the iron ore mine at
Kodolibad, Jharkhand. However, we have not factored this in
our estimates on account of pending clearances for this mine.
ECL (65% market share) is likely to benefit from strong demand
for DI pipes in India, which is set to grow at 15% p.a. Although
currently the orders have slowed down due to government's slower
spending on infrastructure, which may hurt ECL in the near term,
we believe going forward ECL remains well poised to bag new
orders on account of its proven execution capabilities
Lately, ECL has been facing stiff competition due to the entry of
Jindal Saw. Going ahead, competition is likely to intensify with
the upcoming capacity of Jai Balaji and Tata Metalliks in the
same space. Nevertheless, we believe the risks of ECL losing
market share is minimal, as it has a long-standing relationship
with government agencies.
ECL is venturing into steel making through its associate Electrosteel
Steels, which is setting up a 2.2mn tonne steel plant. The plant is
expected to commence production by early FY2013.
Outlook and valuation: We maintain our positive stance on ECL's
initiatives of gradually venturing into steel making through its
associate EIL, which is setting up a 2.2mn tonne steel plant
expected to commence production by early FY2013. Furthermore,
the company's backward integration initiatives through allocation
of coking coal mines are expected to result in cost savings from
FY2013. The stock is currently trading at 5.9x FY2012E and
5.7x FY2013E EV/EBITDA. On P/BV basis, it is trading at 0.5x
each for FY2012E and FY2013E. We maintain our Buy rating
on the stock with an SOTP target price of `37.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Backward integration initiatives to aid margin growth: ECL is
on track to have an integrated business model in place through
a) backward integration initiatives led by the allocation of mines
and b) focus on beefing up its logistic infrastructure to further
reduce costs. ECL was granted mining lease for the Parbatpur
coking coal mine (est. reserves of 231.2mn tonnes) in Jharkhand
in January 2008. For its iron ore requirements, ECL is in the
process of acquiring the mining lease for the iron ore mine at
Kodolibad, Jharkhand. However, we have not factored this in
our estimates on account of pending clearances for this mine.
ECL (65% market share) is likely to benefit from strong demand
for DI pipes in India, which is set to grow at 15% p.a. Although
currently the orders have slowed down due to government's slower
spending on infrastructure, which may hurt ECL in the near term,
we believe going forward ECL remains well poised to bag new
orders on account of its proven execution capabilities
Lately, ECL has been facing stiff competition due to the entry of
Jindal Saw. Going ahead, competition is likely to intensify with
the upcoming capacity of Jai Balaji and Tata Metalliks in the
same space. Nevertheless, we believe the risks of ECL losing
market share is minimal, as it has a long-standing relationship
with government agencies.
ECL is venturing into steel making through its associate Electrosteel
Steels, which is setting up a 2.2mn tonne steel plant. The plant is
expected to commence production by early FY2013.
Outlook and valuation: We maintain our positive stance on ECL's
initiatives of gradually venturing into steel making through its
associate EIL, which is setting up a 2.2mn tonne steel plant
expected to commence production by early FY2013. Furthermore,
the company's backward integration initiatives through allocation
of coking coal mines are expected to result in cost savings from
FY2013. The stock is currently trading at 5.9x FY2012E and
5.7x FY2013E EV/EBITDA. On P/BV basis, it is trading at 0.5x
each for FY2012E and FY2013E. We maintain our Buy rating
on the stock with an SOTP target price of `37.
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