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Strong top-line growth: During 2QFY2012, Bhushan Steel’s (Bhushan) net sales
grew by 43.4% yoy to `2,465cr mainly on account of higher volumes of flat
products. Flat products sales volumes grew by 41.7% yoy to 466,748 tonnes and
long product sales volumes grew by 3.8% yoy to 86,639 tonnes in 2QFY2012.
Long product average realization increased by 19.9% yoy to `45,164/tonne and
flat product average realization increased by 3.7% yoy to `46,987/tonne.
Depreciation and interest costs dent net profit growth: During 2QFY2012, the
company’s EBITDA increased by 47.4% yoy to `721cr, representing EBITDA
margin of 29.2% (up 78bp yoy). EBITDA/tonne stood at US$280 in 2QFY2012
compared to US$248 in 2QFY2011 and US$300 in 1QFY2012. Depreciation
expense increased by 185.0% yoy to `151cr on account of higher capacity.
Interest expense increased by 200.3% yoy to `302cr due to higher debt.
Consequently, net profit decreased by 20.1% yoy to `207cr. The company
reported exceptional item related to forex loss of `100cr during the quarter.
Excluding this exceptional item, adjusted net profit grew by 18.5% yoy to `307cr.
Outlook and valuation: At the CMP, the stock is trading at 9.9x FY2012E and
8.6x FY2013E EV/EBITDA, a significant premium over its peers. Although we
expect sales volume growth of 24.8% over FY2011–15E, we believe it is too early
to play the volume growth story of Bhushan as strong volume growth is expected
only post FY2013. Further, although Bhushan uses a combination of BF-EAF
technology to produce steel, rising prices of iron ore and coal will affect its
margins. Moreover, Bhushan’s debt-equity ratio remains high. We value the stock
at 8.4x FY2013 EV/EBITDA, deriving a target price of `293. Hence,
we recommend a Reduce rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong top-line growth: During 2QFY2012, Bhushan Steel’s (Bhushan) net sales
grew by 43.4% yoy to `2,465cr mainly on account of higher volumes of flat
products. Flat products sales volumes grew by 41.7% yoy to 466,748 tonnes and
long product sales volumes grew by 3.8% yoy to 86,639 tonnes in 2QFY2012.
Long product average realization increased by 19.9% yoy to `45,164/tonne and
flat product average realization increased by 3.7% yoy to `46,987/tonne.
Depreciation and interest costs dent net profit growth: During 2QFY2012, the
company’s EBITDA increased by 47.4% yoy to `721cr, representing EBITDA
margin of 29.2% (up 78bp yoy). EBITDA/tonne stood at US$280 in 2QFY2012
compared to US$248 in 2QFY2011 and US$300 in 1QFY2012. Depreciation
expense increased by 185.0% yoy to `151cr on account of higher capacity.
Interest expense increased by 200.3% yoy to `302cr due to higher debt.
Consequently, net profit decreased by 20.1% yoy to `207cr. The company
reported exceptional item related to forex loss of `100cr during the quarter.
Excluding this exceptional item, adjusted net profit grew by 18.5% yoy to `307cr.
Outlook and valuation: At the CMP, the stock is trading at 9.9x FY2012E and
8.6x FY2013E EV/EBITDA, a significant premium over its peers. Although we
expect sales volume growth of 24.8% over FY2011–15E, we believe it is too early
to play the volume growth story of Bhushan as strong volume growth is expected
only post FY2013. Further, although Bhushan uses a combination of BF-EAF
technology to produce steel, rising prices of iron ore and coal will affect its
margins. Moreover, Bhushan’s debt-equity ratio remains high. We value the stock
at 8.4x FY2013 EV/EBITDA, deriving a target price of `293. Hence,
we recommend a Reduce rating on the stock.
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