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Corus recorded strong
EBITDA of US$66/t for 1Q
FY12, in line with our forecast
• Stake sales/one-offs generated
cash of over US$1.3bn,
improving balance-sheet
quality
• Maintain Buy with lower
target price after revisions to
our coking-coal price forecasts
What's new
The 1Q FY12 results were better than
our and the market’s expectations.
While the ex-India operations
recorded EBITDA of US$66/t, Corus
surprised positively with EBITDA/t
of US$78. However, other Asia
subsidiaries announced weak results.
What's the impact
We have revised down our FY12-13
EPS forecasts by 14.2-16.1% and
lowered our six-month target price
from Rs697 to Rs652, due to the
lower-than-expected profitability at
Corus. However, our FY13 EPS
revision comes largely on back of
our higher coking-coal cost
assumptions for Corus, which we
have adjusted up by 7.7% for both
FY12 and FY13.
During the quarter, management
sold its stake in subsidiary Tata
Refractories (Not Listed), and also
its stake in Riversdale Mining (Not
rated).
Further, during the quarter, the
company received US$130m as final
settlement toward its arbitration
against the consortium of four steel
makers who allegedly defaulted on
their 10-year slab offtake agreement
with Tata Steel Europe. These oneoff
gains resulted in strong cash
inflow of more than US$1.3bn and a
one-time gain of US$892m.
However, adjusting for the
extraordinary item, consolidated
PAT stood at Rs16bn (down 15%
YoY, up 11.7% QoQ), just 4.8%
below our forecast.
What we recommend
The share price has corrected by
around 17% over the past month and
is now trading at an FY13E
EV/EBITDA multiple of 4.0x on our
revised forecasts, which we consider
attractive. We think most of the
negatives have already been priced
into the stock, and believe the
current price offers significant value
for long-term investors. The
company is likely to commission its
2.9mtpa expansion at Jamshedpur
in India during 4Q FY12, which
should lead to more stable
profitability, and hence better
valuations once the plant ramps up.
Management however expects the
European region to continue to face
uncertainty over the next 3-6
months, which we believe is already
factored into the share price.
We continue to value the stock at a
5.0x FY13 EV/EBITDA multiple.
We would see the key risks as lowerthan-
expected steel prices and
higher-than-expected iron-ore and
coking-coal prices.
How we differ
We remain more bullish than the
consensus on the company’s
ongoing India expansion plans and
the recent cash generation through
the stake sale, which we believe will
improve its balance sheet furthe
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Corus recorded strong
EBITDA of US$66/t for 1Q
FY12, in line with our forecast
• Stake sales/one-offs generated
cash of over US$1.3bn,
improving balance-sheet
quality
• Maintain Buy with lower
target price after revisions to
our coking-coal price forecasts
What's new
The 1Q FY12 results were better than
our and the market’s expectations.
While the ex-India operations
recorded EBITDA of US$66/t, Corus
surprised positively with EBITDA/t
of US$78. However, other Asia
subsidiaries announced weak results.
What's the impact
We have revised down our FY12-13
EPS forecasts by 14.2-16.1% and
lowered our six-month target price
from Rs697 to Rs652, due to the
lower-than-expected profitability at
Corus. However, our FY13 EPS
revision comes largely on back of
our higher coking-coal cost
assumptions for Corus, which we
have adjusted up by 7.7% for both
FY12 and FY13.
During the quarter, management
sold its stake in subsidiary Tata
Refractories (Not Listed), and also
its stake in Riversdale Mining (Not
rated).
Further, during the quarter, the
company received US$130m as final
settlement toward its arbitration
against the consortium of four steel
makers who allegedly defaulted on
their 10-year slab offtake agreement
with Tata Steel Europe. These oneoff
gains resulted in strong cash
inflow of more than US$1.3bn and a
one-time gain of US$892m.
However, adjusting for the
extraordinary item, consolidated
PAT stood at Rs16bn (down 15%
YoY, up 11.7% QoQ), just 4.8%
below our forecast.
What we recommend
The share price has corrected by
around 17% over the past month and
is now trading at an FY13E
EV/EBITDA multiple of 4.0x on our
revised forecasts, which we consider
attractive. We think most of the
negatives have already been priced
into the stock, and believe the
current price offers significant value
for long-term investors. The
company is likely to commission its
2.9mtpa expansion at Jamshedpur
in India during 4Q FY12, which
should lead to more stable
profitability, and hence better
valuations once the plant ramps up.
Management however expects the
European region to continue to face
uncertainty over the next 3-6
months, which we believe is already
factored into the share price.
We continue to value the stock at a
5.0x FY13 EV/EBITDA multiple.
We would see the key risks as lowerthan-
expected steel prices and
higher-than-expected iron-ore and
coking-coal prices.
How we differ
We remain more bullish than the
consensus on the company’s
ongoing India expansion plans and
the recent cash generation through
the stake sale, which we believe will
improve its balance sheet furthe
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