Angel Broking - Bhushan Steel - RU4QFY2012 - Result Updates - PDF link

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Bhushan Steel - RU4QFY2012

Bhushan Steel - Anticipating volume surge; company update; Hold :Edelweiss PDF link

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Bhushan Steel (BHUS IN, INR 434, Hold)

Bhushan Steel (BSL) in the concall to discuss Q4FY12 results highlighted: (a) commissioning of Phase III is on track for completion in Q3FY13; (b) volume guidance of 2.7-2.8mt in FY13 (our assumption 2.1mt) on back of strong demand from auto/white goods industry; (c)  it may raise ~USD300-500mn in current fiscal depending upon the capital market scenario. We retain estimates and maintain ‘HOLD’ with target price of INR402/share.

FY13 volume guidance at 2.7-2.8mt

BSL has given a volume guidance of 2.7-2.8mt for FY13 with HRC production target of 1.8mt. Capacity utilisation at the sponge iron plant (current 55-60%) is also expected to improve to ~70% in FY13.

Phase III project to be commissioned in Q3FY13

Phase III expansion project is expected to get commissioned in Q3FY13. While the slab caster is expected to start in August 2012, blast furnace is expected to be commissioned by November 2012 (we assume no benefit of same in FY13). Till date, INR110bn has been spent on phase III implementation with additional INR25bn likely to be spent over the next six-nine months.

Equity issuance of ~USD300-500mn in FY13

Post the INR7bn rights issue in January 2012, the company plans to raise another ~USD300-500mn via QIP in the current fiscal depending upon capital market scenario.

Outlook and valuations: Positives priced in; maintain ‘HOLD’

Timely completion of Phase III project is a key trigger for BSL. We retain our estimates and maintain ‘HOLD/Sector Performer’ on the stock with TP of INR402/share. At CMP, the stock is currently trading at 6.7x FY14E EV/EBITDA while we are valuing at 5.5x.

Bhushan Steel - Anticipating volume surge; company update; Hold

Regards,

Bhushan Steel: Hold ::Business Line

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Bhushan Steel: Q3FY12 – Strong growth in topline driven by higher realisation. • ::GEPL

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Q3FY12 – Strong growth in topline driven by higher realisation.
• Net sales of Bhushan Steel Ltd (BSL) for Q3FY12, grew by 23.9% Y-o-Y to `24,071 mn driven
by improvement in realisation with increase in volumes of flat steel products.
• EBIDTA Margin for the Q3FY12 grew by 241bps to 30.1% in Q3FY12 on Y-o-Y basis, driven by
strong realisation, in house sourcing of Hot Rolled (HR) steel coupled with softening of raw
material prices.
• Net profit for Q3FY12 stood at `2,767 mn, showing a de- growth of 1.3% Y-o-Y. However on
Q-o-Q basis net profit grew by 33.8%, mainly driven by a sharp fall in expense pertaining to
interest & exceptional item, which fell by 24% on Q-o-Q basis.
Result Highlights
Strong Flat steel production in Q3FY12, driven by stabilization of Hot Rolled Plant at
Orissa.
Total Flat steel production grew by 16.1% in Q3FY12 on Y-o-Y basis. This was driven by a sharp
increase in production of HR on account of stabilization of the plant. HR production for Q3FY12
grew by 34.1% Y-o-Y and 16.7% Q-o-Q. With further stabilization of HR steel plant we expect
the contribution form HR to improve from current levels.
Sales volume for flat products in Q3FY12 grew by 17.1% Y-o-Y while for long steel products
volume declined by 17% Y-o-Y.
Net sales volume for flat products grew by 17% Y-o-Y, however volumes for long products on Yo-
Y basis de-grew by 17% in Q3FY11. As a result the overall net sales volume showed a
moderate growth of 9.7% Y-o-Y.
Blended net realisation grew by 13.2% on Y-o-Y, driven by sharp increase in realisation for
Long as well as flat products.
Blended net realisation for Q3FY12 grew by 13.2% on Y-o-Y basis and 5.3% on Q-o-Q basis,
aided by sharp increase in realisation of both long and flat products, which grew by 27.9% and
8.9% on Y-o-Y basis respectively.
Valuation & viewpoint
We maintain our target of `377 based on DCF. However, considering the strong run up in the
stock over the last 1 month we believe the upside is limited and hence changed our rating on
the stock to NEUTRAL from the previous BUY rating a month back.
The overall performance of Bhushan Steel has been in line with expectation. Owing to its
recent backward integration of making HR and further stabilization of the same had helped
company improve its EBIDTA margins in Q3FY12. Highly stretched balance sheet with large
debt remains to be a concern, however with recent announcement of company to raise equity
capital of 7,000 mn by rights issue comes as a positive for the stock.

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Sell Bhushan Steel; target of Rs 297: PINC Research

PINC Research is bearish on Bhushan Steel and has recommended sell rating on the stock with a target of Rs 297 in its January 30, 2012 research report.
"Bhushan Steel's Q3FY12 revenue at Rs24.1bn grew 24% YoY on higher volumes (up 10% YoY) and improved blended realisations (up 13% YoY) on rupee depreciation. Operating profit surged by 35% YoY to Rs7.2bn further aided by higher consumption of captive HRC. OPM expanded by 241bps YoY to 30.1%. Net profit at Rs2.8bn declined 1.3% YoY on higher depreciation & interest cost on Odisha phase-II, despite lower effective tax rate."
"Sales volume at ~513kt grew 10% YoY on expanded capacities as HRC sales grew 75% YoY to 165kt. Further, blended realisation at Rs46,679/t grew 13% YoY on rupee depreciation, even though share of value added products declined to 67% vs 75% in Q3FY11. EBITDA/t grew 23% YoY to Rs14,118. As of Q3FY12, Bhushan Steel has ~Rs200bn of net debt (incl. Rs19.8bn of preference share as debt) with net D/E of 4.34x. Bhushan's board approved raising of Rs7.0bn via rights issue, the premium for which would be decided later on. The fund rasing was much required for the highly leveraged balance sheet of Bhushan Steel. We view this development positively."  Bhushan Steel is in the midst of high growth, with contribution from Odisha phase- II providing volume growth in FY12E-FY13E. Further, Odisha phase-III (2.5mntpa HRC) and downstream expansions (2.8mntpa value-added products) are on track for completion in FY13E-FY14E that shall provide growth FY14E onwards."
"Consequently, we estimate Bhushan's FY11-FY14E EBITDA to grow at a CAGR of 28% drive by volume CAGR of 28%. However, we estimate EPS CAGR of 4% to be subdued by rise in interest and depreciation cost. Further, very high financial leverage (FY12E net D/E of 4.1x) and lack of captive resources amidst tight iron ore supply in Odisha are cause for concerns. Although company's fund raising plans via rights issue partly allays our concern, we find the stock expensive at 5.3x FY13E EV/EBITDA. We have revised our FY12 and FY13 estimates to factor in the change in macro assumptions and introduce FY14 estimates (ref pg 3). We maintain 'SELL' rating on the stock with a TP of Rs 297 (5x FY13E EV/EBITDA)," says PINC Research report.

-- 

Bhushan Steel : 2QFY2012 Result Update: Angel Broking,

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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.

Bhushan Steel - Fixed costs continue to weigh : :Emkay

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Bhushan Steel

Fixed costs continue to weigh

HOLD

CMP: Rs322                                        Target Price: Rs315

---

n     Topline above our expectations at Rs 24.7 bn, up 43% YoY and 11% QoQ, mainly backed by 34% YoY and 13% QoQ growth in sales volume to 5.53 lakh tonne

n     Operating performance also remained better with EBITDA at Rs 7.2 bn, up 47% YoY and 9% QoQ. EBITDA/ tonne stood at Rs 13030, down 4% QoQ but up 10% YoY      

n     Despite good margins APAT stood at Rs 2.1 bn, down 20% YoY and flat QoQ, because of higher interest costs and lower other income for the quarter

n     FY12E and FY13E EPS stand at Rs 42 and Rs 47 respectively.  Cutting our target EV/ EBITDA multiple to 5x for FY13E, which translates to a target price of Rs 315/ share. Maintain Hold        

Bhushan Steel -Higher depreciation, interest cost to weigh HOLD:Emkay

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Bhushan Steel

Higher depreciation, interest cost to weigh

HOLD

CMP: Rs375                                        Target Price: Rs425

---

n     Topline performance came better than our expectations at Rs 22.3 bn, up 63% YoY and 14% QoQ, mainly backed by 58% YoY and 15% QoQ growth in sales volume to 4.89 lakh tonne

n     EBITDA performance also has been better than our estimate at Rs 6.6 bn, up 62% YoY and 10% QoQ. EBITDA/ tonne stood at Rs 13500, down 5% QOQ but up 2% YoY      

n     APAT at Rs 2.1 bn, up 2% YoY and down 27% QoQ, met our estimates despite higher revenue and EBITDA on 119% and 63% QoQ rise respectively in depreciation and interest costs

n     We revise down our EPS for FY12E and FY13E to Rs 42 and Rs 47 respectively with a target price of Rs 425/ share; Maintain Hold        

Bhushan Steel High leverage to weigh on operating performance HOLD ::Emkay

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Bhushan Steel

High leverage to weigh on operating performance

HOLD

CMP: Rs 445                                       Target Price: Rs 454

---

n     Bhushan Steel reported a topline of Rs 19.7 bn for Q4FY11, up 22% YoY and flat QoQ. Sales volume declined by 9% QoQ despite rising 8% YoY

n     Fall in raw material costs as a percentage to revenues helped EBITDA to grow 43% YoY and 12% QoQ to Rs 6 bn. EBITDA margins also improved 458 bps YoY and 297 bps to 30.6%      

n     Despite good operating performance, higher depreciation, interest costs and tax rate kept the PAT restricted at Rs 2.9 bn, up 19% YoY and 3% QoQ    

n     Our EPS estimates for FY12E and FY13E stand at Rs 54.1 and Rs 55 respectively. We are resuming our coverage on the company with a target price of Rs 454; Hold       

Bhushan Steel: 4QFY11 results : CLSA

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4QFY11 results
Bhushan Steel’s (BSL) 4Q11 net profit at Rs2.9bn was up 34% YoY but 17%
below estimates due to lower than expected volumes and higher tax rate.
ASPs grew a strong 11% QoQ which drove a 23% QoQ growth in Ebitda/t to
US$299 – better than we estimated. The board’s approval for US$1bn capital
raising is a positive step towards balance sheet deleveraging. The key trigger
for the stock is the successful commissioning of expansion to 4.7mt by Oct-12.
Till then the stock remains high risk given high gearing. We see limited stock
return on a 12m view, but believe that the stock could double in 2-yrs on
commissioning of Phase-III expansion.

Goldman Sachs: Bhushan Steel - Below expectations; lower volumes offset strong realizations in 4Q

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Bhushan Steel (BSSL.BO)
Neutral  Equity Research
Below expectations; lower volumes offset strong realizations in 4Q
What surprised us
Bhushan Steel reported 4QFY11 net income of Rs2.9 bn (+12% yoy, +3%
qoq), 13% below our estimate and 7% below Reuters consensus. FY11 net
income of Rs10.3 bn (+22% yoy) came in 4% below our estimate. In our
view, the miss was driven primarily by lower sales volumes which came in
at 0.425 mn tons for the quarter (-9% qoq, 16% below GS estimate), as
demand slowed down in Feb/March due to sharp price hikes. Average
realizations were strong, up 12% qoq. At the operating level, EBITDA/ton
was robust, at $315/ton in 4Q (vs. GSe of $270/ton, $255 in 3Q). For FY11,
EBITDA/ton expanded to $275/ton vs. $211 in FY10. The company capitalized
around Rs90bn of phase II expansion capex in Mar’11, which would lead to
higher depreciation and interest payments in FY12.  Phase III of Orissa
project (2.5mn tons of HRC) is on track for commissioning by Oct 2012. As of
Mar’11, net debt stands at Rs155bn, implying net debt/equity of 3.1X.

Bhushan Steel: Emerging primary steel producer -Motilal Oswal

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Bhushan Steel- Emerging primary steel producer
Bhushan Steel (Bhushan) is a leading cold-rolled product manufacturer in India, with a
rich product mix. Its plants are strategically located near customers and ports. Valueadded
products such as cold-rolled color coated sheets, galva and galume dominate
its revenue mix (77% in FY10). To integrate backward, Bhushan has set up a 2.2mtpa
integrated steel plant, India's only successful greenfield steel project in the last decade.
The plant is in the mineral rich state of Orissa and is being expanded further to 5mtpa
by FY13. Its captive iron ore and coal mines will start production over the next 2-3
years.
Crude steel production to grow at 32% CAGR
 The Orissa plant started production of steel in 2006 in a small way, with initial
capacity of 300ktpa (phase-1). Though its 1.9mtpa HRC plant started production
in April 2010 (phase-2) and has already achieved capacity utilization of 60%,
commercial production is likely to be announced in March 2011. HRC production
is expected to grow at a CAGR of 38% to 1.62m tons over FY11-13.
 Phase-III expansion to 5mtpa is expected to be commissioned by 1QFY13; the
company has already spent Rs42b out of the total project cost of Rs100b. We
expect crude steel production to grow at 32% CAGR to 2.1m tons over FY11-13.
 Bhushan is setting up a 0.5mtpa ERW pipe mill (4"-25") at Khopoli at a capex of
Rs12b. Work on the mill is on track for commissioning by June 2011. This will
increase value addition.
Iron ore and coking coal prices to push up cost of production
At present, Bhushan sources iron ore from the mineral rich area of Barbil, Orissa.
~80% of its iron ore requirement is met through Orissa Mining Corporation mines
(~180km away from Angul) and it sources 70-85% of its coal through linkage provided
by Mahanandi Coalfields. Iron ore prices have been hardening for the last few months.
Prices of e-auction coal have also increased by ~25%. While steel prices have
increased, so have costs.
Raw material integration over 2-3 years
 Though Bhushan has already been allotted captive mines for key raw materials,
development of these mines has been slow. The thermal coal mine at Orissa is at
the stage of land acquisition. The company expects to get land possession in the
next six months.
 Bhushan has acquired 60% stake in Bowen Energy, Australia for US$15m with
the intention of ensuring long-term supply of coking coal. Bowen holds licenses to
explore four major coal blocks in the Bowen basin. The mine portfolio consists of
two open cast thermal mines (West Rollestone and Tarong Projects), one
underground coking coal mine (Black Water South Project) and one underground
coking, PCI, thermal coal mine (East Middlemount). The first stage of exploration
is completed and it will take 3-4 years to commence production from these mines.


Leveraged play on strong volume growth
 Debt increased from Rs110b as of March 2010 to Rs140b as of December 2010.
Annual capex of Rs25b will keep absolute debt rising till FY12. Debt-equity ratio,
however, will decline from 2.8x in FY10 to 1.5x by FY13 due to improved internal
cash flows.
 Bhushan has delivered superior margins in the last few quarters due to focus on
value addition and strict control over costs. Volumes will continue to grow as HSM's
capacity utilization is improving every quarter. Ongoing expansion to 5mtpa will add
further to steel volumes in FY13. We expect earnings to grow at a CAGR of 22% over
FY10-13. The stock is trading at 6.6x FY12E EPS and an EV of 6.9x EBITDA. We
value the stock at Rs598 (2x FY12E BV). Maintain Neutral.

Bhushan Steel: Buy : Business Line

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Rising raw material costs and a challenging market to pass on those hikes have made for a trying environment for steel producers over the last two quarters. In such a setting, integrated producers with a premium product mix have an ace up their sleeve. A recent entrant to the integrated producer category, Bhushan Steel, appears a smart bet in the space, owing to its expertise in producing cold-rolled steel and improving margins as a result of higher capacities and vertical integration.

At the current market price, the enterprise value/tonne stands at around Rs 41,000 on its projected 2012 capacity, which is a premium to larger peers such as SAIL and JSW but just hovering below its replacement cost. This maybe justified, given the company's product mix and limited scale which may render backward integration into mining smoother. On a P/E basis, the company trades at around 7.8 times the trailing 12-month earnings, a discount to larger companies in the steel sector.

Accumulate Bhushan Steel– 3QFY2011 Result Update - Angel Broking

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 Bhushan Steel– 3QFY2011 Result Update

            Angel Broking recommends an Accumulate on Bhushan Steel with a Target Price of Rs. 419.

Strong top-line growth: For 3QFY2011, Bhushan Steel reported net profit growth

of 35.9% yoy and 13.0% qoq to `1,943cr on account of a) higher sales volumes,

which grew by 30.1% yoy and 13.2% qoq to 467kt and b) an increase in blended

realisations by 6.9% yoy (but flat qoq) to `45,073/tonne. Flat product sales

volume increased by 43.0% yoy and 11.5% qoq to 367kt, while long product

sales volume declined by 2.4% yoy (but up 19.8% qoq) to 100kt. In 3QFY2011,

the 1.9mn-tonne hot strip mill produced 241kt of hot rolled (HR) coils.

Goldman Sachs: Bhushan Steel - On an “upstream” trajectory, growth priced in

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Bhushan Steel (BSSL.BO)
Neutral Equity Research
On an “upstream” trajectory, growth priced in; initiate with Neutral
Investment view
We initiate coverage of Bhushan Steel (BSSL) with a Neutral rating and
12-month FY12E P/B-based target price of Rs454. While we like Bhushan
Steel’s long-term structural growth outlook driven by backward
integration through Orissa expansion, strong volume growth, and
improving EBITDA profile, we believe that the ROE profile would remain
muted in the medium term, as higher operating profits would be offset by
higher interest payments and depreciation. High leverage (net/debt to
equity of 2.9X) and lack of raw material integration would continue to be
an overhang on the stock, in an inflationary environment, in our view.

Buy Bhushan Steel Transformation continues; Anand Rathi

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Bhushan Steel
Transformation continues; maintain Buy
Bhushan Steel’s (BSL) 3QFY11 performance was robust, with
~38% yoy growth in operating profit and 23% yoy growth in net
profit, on the back of improving utilization from its new hot
rolled coil (HRC) plant. Maintain Buy.

BHUSHAN STEEL -Subdued quarter; strong outlook: Edelweiss

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􀂃 Revenues in line with estimates; EBITDA disappoints
Bhushan Steel (BSL) reported revenue growth of 13% Q-o-Q and 36% Y-o-Y, to
INR 19.4 bn. While net realisation was in line with our estimate of INR 41.5k/t,
volumes came ~3.6% above our estimates, resulting in ~3.8% higher revenues
(against estimated). EBITDA/t, at INR 11.5k/t, came in much lower than our
estimate of INR 14.6k/t, primarily on account of higher raw material cost.
Consequently, EBITDA, at INR 5.4 bn (up 10% Q-o-Q and 38% Y-o-Y), was
~18% below estimates. Net profit for the quarter stood at INR 2.8 bn against
our estimate of ~INR 3.6 bn.

Bhushan Steel – 2QFY2011 Result Update Angel Broking

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Bhushan Steel – 2QFY2011 Result Update

Angel Broking recommends a Neutral on Bhushan Steel.

Topline growth led by higher sales volume: Bhushan Steel’s (BSL) sales volume

grew by 21.6% yoy and 33.5% qoq to 413kt. While flat product sales increased

by 33.9% yoy and 52.7% qoq to 329kt, long products sales were down 10.7% yoy

to 83kt. In addition, average gross realisations increased by 11.3% yoy (down 6%

qoq) to `45,015/tonne. Consequently, net revenue increased by 32.4% yoy and

25.2% qoq to `1,719cr. The 1.9mn tonne hot strip mill is under trial runs and BSL

produced 221kt of hot rolled coils (HRC) during 2QFY2011. The mill is expected to

be capitalised in 4QFY2011.

BHUSHAN STEEL-- Strong quarter :: Edelweiss

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BHUSHAN STEEL
Strong quarter


􀂃 Realisations and volumes surprise positively
Bhushan Steel (BSL) reported net sales of INR 17.2 bn in Q2FY11, up 32% Y-o-Y
and 25% Q-o-Q, against our estimate of INR 13.5 bn. Higher sales volume, at
~413kt (up 22% Q-o-Q and 34% Y-o-Y; our estimate ~337kt), coupled with
higher–than-expected realizations were primary drivers of net sales. Average
blended realization stood at INR 41.6k/t (up 9% Y-o-Y, down 6% Q-o-Q), 4.3%
higher than our estimate. The domestic market was primarily responsible for the
stellar volume growth with a ~40% rise, both Q-o-Q and Y-o-Y, at ~350kt.