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Domestic earnings to grow in double digit despite headwinds on margins:
Domestic operations would face multiple headwinds in FY13 on account of
sharp fall in iron ore and coking coal prices, high competitve intensity in flat
products and reduced integration on coking coal. However, thanks to 17%
volume growth attributed to partial benefit of 2.8mtpa brownfield expansion,
FY13 EBITDA would manage to grow by 11% despite 5% decline in EBITDA per
tonne at Rs16,564. EBITDA would further grow by 19% in FY14, driven by 17%
volumes growth and scale benefits.
Current hike in Europe prices driven by restocking; underlying real demand
remains weak: European steel prices rose by ~US$69/t (YTD), attributed
primarily to restocking, firm global prices and unreasonable fall in prices during
Q4CY11. However, the underlying real demand continues to remain weak. Based
on Eurofer’s recent estimates, region’s real demand is expected to fall by 1% in
CY12 on the backdrop of weakness in construction, shipyard and tubes sector.
Europe ops set to gain from correction in input prices: Given the lower input
prices, operation would benefit by reduction in CoP by US$90-100/tonne and
working capital release by US$200m in FY13. Operations would further gain by
closure of loss-making long product manufacturing units in UK and cost savings
associated with rebuild of inefficient BF in Port Talbot in FY13.
Maintain ‘Accumulate’ with TP of Rs495: Despite sharp run-up in the stock
price, stock continues to offer an attractive opportunity given the distress
valuations of European operations at EV/tonne of US$200, strong domestic
operations and increased raw material self-sufficiency from current 33% to 50%
in iron ore and 18% to 23% in coking coal (by FY13 end). We reiterate our
‘Accumulate’ rating with TP of Rs495; EV/EBITDA of 6.3x FY13E domestic
earnings and 5x rest of operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Domestic earnings to grow in double digit despite headwinds on margins:
Domestic operations would face multiple headwinds in FY13 on account of
sharp fall in iron ore and coking coal prices, high competitve intensity in flat
products and reduced integration on coking coal. However, thanks to 17%
volume growth attributed to partial benefit of 2.8mtpa brownfield expansion,
FY13 EBITDA would manage to grow by 11% despite 5% decline in EBITDA per
tonne at Rs16,564. EBITDA would further grow by 19% in FY14, driven by 17%
volumes growth and scale benefits.
Current hike in Europe prices driven by restocking; underlying real demand
remains weak: European steel prices rose by ~US$69/t (YTD), attributed
primarily to restocking, firm global prices and unreasonable fall in prices during
Q4CY11. However, the underlying real demand continues to remain weak. Based
on Eurofer’s recent estimates, region’s real demand is expected to fall by 1% in
CY12 on the backdrop of weakness in construction, shipyard and tubes sector.
Europe ops set to gain from correction in input prices: Given the lower input
prices, operation would benefit by reduction in CoP by US$90-100/tonne and
working capital release by US$200m in FY13. Operations would further gain by
closure of loss-making long product manufacturing units in UK and cost savings
associated with rebuild of inefficient BF in Port Talbot in FY13.
Maintain ‘Accumulate’ with TP of Rs495: Despite sharp run-up in the stock
price, stock continues to offer an attractive opportunity given the distress
valuations of European operations at EV/tonne of US$200, strong domestic
operations and increased raw material self-sufficiency from current 33% to 50%
in iron ore and 18% to 23% in coking coal (by FY13 end). We reiterate our
‘Accumulate’ rating with TP of Rs495; EV/EBITDA of 6.3x FY13E domestic
earnings and 5x rest of operations.
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