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Sarda Energy and Mineral (SEML) posted standalone adjusted PAT of INR187m (up 35% QoQ) for 3QFY12.
Higher coal production, stabilization of pellet plant, and higher merchant power volumes and rates boosted
earnings.
Net sales increased 13% QoQ to INR2.8b (v/s our estimate of INR2.5b), driven by higher pellet and power
sales, and increase in sponge iron prices.
EBITDA increased 34% QoQ to INR481m, driven by increase in production of pellets and coal, higher power
generation, and higher sponge iron prices. Pellets are currently enjoying superior margins due to shortage of
DRI grade iron ore and strong sponge iron prices.
Reported standalone PAT was INR278m. This includes INR137m MTM impact of forex loss reversal, as SEML
has adopted new guidelines for amortization of forex loss over a longer period.
Valuation and view: After a couple of quarters of subdued performance, the pellet plant has stabilized. The coal
washery, which was started in August 2011, is also ramping up well and mining production has increased. We are
increasing our earnings estimate for FY13 to factor in stabilization of the pellet plant and coal washery, and rampup
of coal mining. The stock trades at an EV of 5.3x FY12E EBITDA. Maintain Neutral.
EBITDA up 34% QoQ helped by significant improvement in Pellet plant and
higher coal production
EBITDA increased 34% QoQ to INR481m due to increase in Pellet, coal production,
power generation and higher sponge iron prices. Pellets are enjoying superior
margins due to shortage of DRI grade iron ore and strong sponge iron prices.
SEML has adopted the new guidelines for amortization of forex loss over a longer
period. This is has resulted in higher depreciation on account of amortization of
forex loss by INR20m, as INR527m was added to the cost of foreign assets
acquisition. Forex gain (write-back) of INR 137m was a result of reversal of forex
loss booked in 2QFY12 as SEML adopted new guidelines.
Increasing FY13 earnings by 21% on pellet plant and coal washery
stabilization, coal mining ramp up; Vizag project on schedule: Maintain
Neutral
INR5.5b Ferro project at Vizag is progressing on schedule to get commissioned by
1QFY13. Production capacity would be 125ktpa with 2*33 MVA submerged arc
furnace and 80MW CPP.
After couple of quarters of subdued performance pellet plant has finally stabilized.
Coal washery which was started in August 2011 is also ramping up well and mining
production has been increased to support higher requirement due to washery.
We are increasing FY13 earnings by 21% to factor pellet plant and coal washery
stabilization, and coal mining ramp up. The stock trades at an EV of 5.3 FY12E
EBITDA. Maintain Neutral.
Company description
Sarda Energy and Minerals (SEML) produces steel via
sponge iron route, having 240ktpa of crude steel capacity
and 360ktpa of sponge at Siltara, Raipur (Chhattisgarh).
It is also one of the largest ferroalloy producers, with a
capacity of 72ktpa and 81.5MW of captive power plant.
The company has been allotted captive iron ore as well
as coal mines. SEML is a play on sponge iron prices and
power.
Key investment arguments
Volumes of steel business are likely to move up
gradually through asset sweating as there is
sufficient scope to improve capacity utilization.
Stabilization of pellet plant and coal washery and
ramp up in coal production will driver earnings.
SEML is investing INR5.5b into a Greenfield ferro
project (125ktpa with 2*33 MVA submerged arc
furnace and 80MW CPP) at Vizag. The project is
expected to get commissioned by 1QFY13.
Key investment risks
Earnings are highly leveraged to ferroalloy and steel
prices.
Recent developments
2 MW Solar Power Plant was commissioned in
January. It would approximately generate 10,000
units of power per day. The life of the plant is 25
years; also arrangement of selling the units is
through Power Purchase agreement with state utility
spanning 25 years with price of Rs. 15.84/unit.
Valuation and view
The stock trades at an EV of 5.3 FY12E EBITDA.
Maintain Neutral.
Sector view
Global steel demands still remains subdued due to
European economic problems and slow down in
construction in China. Certain raw material side
issues have prevented costs correction for steel mills
thereby forcing them to cut production. Global crude
steel production is down 11% to 115m tons in
November 2011 from peak production of 130m tons
in May 2011. Global economic growth slowdown
mainly in China continues to cloud demand outlook.
Indian real steel demand too has slowed down
growing only 4.2% YoY to 45.2m tons during April-
November 2011. We believe Indian demand will still
grow 7-8% over couple of years. Depreciation of INR
against USD and appreciating Yuan has increased
competitiveness of Indian producer’s vis-à-vis their
Chinese counterparts, therefore lowering Chinese
imports threat
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sarda Energy and Mineral (SEML) posted standalone adjusted PAT of INR187m (up 35% QoQ) for 3QFY12.
Higher coal production, stabilization of pellet plant, and higher merchant power volumes and rates boosted
earnings.
Net sales increased 13% QoQ to INR2.8b (v/s our estimate of INR2.5b), driven by higher pellet and power
sales, and increase in sponge iron prices.
EBITDA increased 34% QoQ to INR481m, driven by increase in production of pellets and coal, higher power
generation, and higher sponge iron prices. Pellets are currently enjoying superior margins due to shortage of
DRI grade iron ore and strong sponge iron prices.
Reported standalone PAT was INR278m. This includes INR137m MTM impact of forex loss reversal, as SEML
has adopted new guidelines for amortization of forex loss over a longer period.
Valuation and view: After a couple of quarters of subdued performance, the pellet plant has stabilized. The coal
washery, which was started in August 2011, is also ramping up well and mining production has increased. We are
increasing our earnings estimate for FY13 to factor in stabilization of the pellet plant and coal washery, and rampup
of coal mining. The stock trades at an EV of 5.3x FY12E EBITDA. Maintain Neutral.
EBITDA up 34% QoQ helped by significant improvement in Pellet plant and
higher coal production
EBITDA increased 34% QoQ to INR481m due to increase in Pellet, coal production,
power generation and higher sponge iron prices. Pellets are enjoying superior
margins due to shortage of DRI grade iron ore and strong sponge iron prices.
SEML has adopted the new guidelines for amortization of forex loss over a longer
period. This is has resulted in higher depreciation on account of amortization of
forex loss by INR20m, as INR527m was added to the cost of foreign assets
acquisition. Forex gain (write-back) of INR 137m was a result of reversal of forex
loss booked in 2QFY12 as SEML adopted new guidelines.
Increasing FY13 earnings by 21% on pellet plant and coal washery
stabilization, coal mining ramp up; Vizag project on schedule: Maintain
Neutral
INR5.5b Ferro project at Vizag is progressing on schedule to get commissioned by
1QFY13. Production capacity would be 125ktpa with 2*33 MVA submerged arc
furnace and 80MW CPP.
After couple of quarters of subdued performance pellet plant has finally stabilized.
Coal washery which was started in August 2011 is also ramping up well and mining
production has been increased to support higher requirement due to washery.
We are increasing FY13 earnings by 21% to factor pellet plant and coal washery
stabilization, and coal mining ramp up. The stock trades at an EV of 5.3 FY12E
EBITDA. Maintain Neutral.
Company description
Sarda Energy and Minerals (SEML) produces steel via
sponge iron route, having 240ktpa of crude steel capacity
and 360ktpa of sponge at Siltara, Raipur (Chhattisgarh).
It is also one of the largest ferroalloy producers, with a
capacity of 72ktpa and 81.5MW of captive power plant.
The company has been allotted captive iron ore as well
as coal mines. SEML is a play on sponge iron prices and
power.
Key investment arguments
Volumes of steel business are likely to move up
gradually through asset sweating as there is
sufficient scope to improve capacity utilization.
Stabilization of pellet plant and coal washery and
ramp up in coal production will driver earnings.
SEML is investing INR5.5b into a Greenfield ferro
project (125ktpa with 2*33 MVA submerged arc
furnace and 80MW CPP) at Vizag. The project is
expected to get commissioned by 1QFY13.
Key investment risks
Earnings are highly leveraged to ferroalloy and steel
prices.
Recent developments
2 MW Solar Power Plant was commissioned in
January. It would approximately generate 10,000
units of power per day. The life of the plant is 25
years; also arrangement of selling the units is
through Power Purchase agreement with state utility
spanning 25 years with price of Rs. 15.84/unit.
Valuation and view
The stock trades at an EV of 5.3 FY12E EBITDA.
Maintain Neutral.
Sector view
Global steel demands still remains subdued due to
European economic problems and slow down in
construction in China. Certain raw material side
issues have prevented costs correction for steel mills
thereby forcing them to cut production. Global crude
steel production is down 11% to 115m tons in
November 2011 from peak production of 130m tons
in May 2011. Global economic growth slowdown
mainly in China continues to cloud demand outlook.
Indian real steel demand too has slowed down
growing only 4.2% YoY to 45.2m tons during April-
November 2011. We believe Indian demand will still
grow 7-8% over couple of years. Depreciation of INR
against USD and appreciating Yuan has increased
competitiveness of Indian producer’s vis-à-vis their
Chinese counterparts, therefore lowering Chinese
imports threat
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