Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kolkata based Electrosteel Castings Ltd (ECL), is India’s largest Ductile Iron
Pipe manufacturer catering chiefly to the Government and Urban Local
Bodies in the transportation of drinking water & sewerage on domestic
market front besides fulfilling the requirement of overseas market. ECL also
executes DI pipe related EPC projects on a turnkey basis
Investment Rationale
Water infra thrust to boost demand
The XIth 5‐year plan saw an investment of ~Rs1tn in the water infrastructure
space. The Government has emphasized the investment in the sector in
increased vigour during the XIIth plan as well. The industry is expected to
sustain a growth of 15% CAGR for FY12‐13e.
Captive coking coal and iron ore mining will boost margins
With the start of coking coal mining along with coal washery facility, the
company would be able to obviate the raw material volatility seen in recent
times. We estimate ~15% and 10% cost reduction in the coke in FY12e and
FY13e respectively. Further, in FY13e, the iron ore mining is expected to feed
the entire requirements of ECL, which will further reduce the cost. We
estimate ~50% reduction in ore cost on such development.
JV for Non‐coking coal remains positive upside
ECL has entered into a JV with Domco Pvt Ltd for prospecting of non‐coking
coal, which would feed partially to its sponge iron plant at Haldia. ECL has
49% stake in the venture. The balance production is planned to be sold in the
market. Also, ECL is developing dolomite mines allocated to it, which will be
partially routed to the production of sponge iron and pig‐iron. However, we
have not accounted for any upside from Non‐coking coal and dolomite
mining.
Key Investment Risk
Delay in development of Iron ore mining
Disruption of iron‐ore supply from Orissa
Significant price rise in imported coking coal
Valuation – strong upside potential
We aver that 2012E would pan out to be a difficult year for all ferrous
companies (sans RM linkage) considering the tight situation prevailing in the
raw material side. But situation is expected to subside for the better in FY13E
on benefits accruing from ECL’s own mining. ECL is trading at PE of 5.6x and
EV/EBITDA of 7.6x of its FY11 earnings. We expect the company to post an
EPS of Rs.10.5 for FY13e. Based on 4x FY13e EPS, we arrive at one year price
target of Rs.42 giving 62% upside from the current market price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kolkata based Electrosteel Castings Ltd (ECL), is India’s largest Ductile Iron
Pipe manufacturer catering chiefly to the Government and Urban Local
Bodies in the transportation of drinking water & sewerage on domestic
market front besides fulfilling the requirement of overseas market. ECL also
executes DI pipe related EPC projects on a turnkey basis
Investment Rationale
Water infra thrust to boost demand
The XIth 5‐year plan saw an investment of ~Rs1tn in the water infrastructure
space. The Government has emphasized the investment in the sector in
increased vigour during the XIIth plan as well. The industry is expected to
sustain a growth of 15% CAGR for FY12‐13e.
Captive coking coal and iron ore mining will boost margins
With the start of coking coal mining along with coal washery facility, the
company would be able to obviate the raw material volatility seen in recent
times. We estimate ~15% and 10% cost reduction in the coke in FY12e and
FY13e respectively. Further, in FY13e, the iron ore mining is expected to feed
the entire requirements of ECL, which will further reduce the cost. We
estimate ~50% reduction in ore cost on such development.
JV for Non‐coking coal remains positive upside
ECL has entered into a JV with Domco Pvt Ltd for prospecting of non‐coking
coal, which would feed partially to its sponge iron plant at Haldia. ECL has
49% stake in the venture. The balance production is planned to be sold in the
market. Also, ECL is developing dolomite mines allocated to it, which will be
partially routed to the production of sponge iron and pig‐iron. However, we
have not accounted for any upside from Non‐coking coal and dolomite
mining.
Key Investment Risk
Delay in development of Iron ore mining
Disruption of iron‐ore supply from Orissa
Significant price rise in imported coking coal
Valuation – strong upside potential
We aver that 2012E would pan out to be a difficult year for all ferrous
companies (sans RM linkage) considering the tight situation prevailing in the
raw material side. But situation is expected to subside for the better in FY13E
on benefits accruing from ECL’s own mining. ECL is trading at PE of 5.6x and
EV/EBITDA of 7.6x of its FY11 earnings. We expect the company to post an
EPS of Rs.10.5 for FY13e. Based on 4x FY13e EPS, we arrive at one year price
target of Rs.42 giving 62% upside from the current market price.
No comments:
Post a Comment