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For 2QFY2012, Electrosteel Castings (ECL) reported modest top-line growth;
however, the company’s EBITDA and net profit were negatively affected due to
higher raw-material and interest costs. We continue to maintain our Buy
recommendation on the stock.
Modest sales growth: During 2QFY2012, ECL’s net sales grew by 8.3% yoy to
`456cr mainly driven by DI pipes sales volume, which grew to 67,800 tonnes vs.
65,000 tonnes in 2QFY2011. Furthermore, higher realization across product
categories aided net sales growth.
Higher input costs and interest expense dent 2QFY2012 profits: During the
quarter, raw-material cost as a percentage of sales increased to 59.9% in
2QFY2012 compared to 50.0% in 2QFY2011. As a result, EBITDA margin
dipped by 829bp yoy to 10.0% in 2QFY2012 and EBITDA fell by 40.8% yoy to
`45cr. Interest expense during the quarter grew by 45.9% yoy to `15cr, while tax
rate came in lower at 5.0% vs. 32.0% in 2QFY2011. Consequently, net profit
decreased by 49.8% yoy to `19cr.
Outlook and valuation: We maintain our positive stance on the company’s
initiatives of venturing into steel making through its associate Electrosteel Steels
(ESL). Further, 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 P/BV of 0.5x each for FY2012E and FY2013E. We
maintain our Buy recommendation on the stock with an SOTP target price of `33.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Electrosteel Castings (ECL) reported modest top-line growth;
however, the company’s EBITDA and net profit were negatively affected due to
higher raw-material and interest costs. We continue to maintain our Buy
recommendation on the stock.
Modest sales growth: During 2QFY2012, ECL’s net sales grew by 8.3% yoy to
`456cr mainly driven by DI pipes sales volume, which grew to 67,800 tonnes vs.
65,000 tonnes in 2QFY2011. Furthermore, higher realization across product
categories aided net sales growth.
Higher input costs and interest expense dent 2QFY2012 profits: During the
quarter, raw-material cost as a percentage of sales increased to 59.9% in
2QFY2012 compared to 50.0% in 2QFY2011. As a result, EBITDA margin
dipped by 829bp yoy to 10.0% in 2QFY2012 and EBITDA fell by 40.8% yoy to
`45cr. Interest expense during the quarter grew by 45.9% yoy to `15cr, while tax
rate came in lower at 5.0% vs. 32.0% in 2QFY2011. Consequently, net profit
decreased by 49.8% yoy to `19cr.
Outlook and valuation: We maintain our positive stance on the company’s
initiatives of venturing into steel making through its associate Electrosteel Steels
(ESL). Further, 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 P/BV of 0.5x each for FY2012E and FY2013E. We
maintain our Buy recommendation on the stock with an SOTP target price of `33.
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