Sarda Energy ::TP: INR120 Neutral ::Motilal Oswal

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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.

Sarda Energy and Minerals :: 2QFY2012 Result Update -Angel Broking,

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For 2QFY2012, Sarda Energy and Minerals (SEML) reported net sales growth of
25.5% yoy to `251cr. Although SEML reported net loss during the quarter,
its adjusted net profit stood at `23cr. We recommend Accumulate on the stock.
Forex loss dents SEML’s 2QFY2012 bottom line: During 2QFY2012, SEML’s net
sales grew by 25.5% yoy to `251cr due to higher realization in the steel segment
coupled with higher sales volume of power. Blended steel realization grew by
71.0% yoy to `33,794/tonne on account of improved product mix and higher
product prices. EBITDA increased by 118.9% yoy to `35cr due to strong
profitability performance from the steel segment and higher power sales.
The company reported net loss of `10cr, primarily because of exceptional items
mainly related to forex losses. Excluding these exceptional items of `33cr, SEML’s
adjusted PAT stood at `23cr in 2QFY2012, compared to `1cr in 2QFY2011.
Outlook and valuation: We continue to believe that SEML is well poised to
benefit from a) backward integration into coal and iron ore, b) commercial
production of pellets and c) increased power and ferro alloy production.
Moreover, firm sponge iron and billet prices should lead to higher capacity
utilization in FY2012 and FY2013, thereby leading to higher sales volumes.
A key catalyst for the stock would be restarting of its iron ore operations at
Rajnandgaon. We recommend Accumulate on the stock with a target price of
`137, valuing the stock at 5.2x FY2013E EV/EBITDA.

Sarda Energy & Minerals - Execution disappointing : Motilal Oswal

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Execution disappointing
 Sarda Energy (SEML) is a Raipur-based ferroalloy cum steel producer, with a rich
mineral portfolio. It uses the DRI route to produce steel and has capacities of
360ktpa sponge, 240ktpa steel and 72ktpa of ferroalloys. It also has rich reserves
of coal, iron and manganese ore allotted across India. However, it currently sources
only coal from its captive mines.
 Its captive iron ore mine in the Rajnandgaon district has not been operational for
the last two years, as the area is impacted by naxalite operations. Though material
and labor movement in the area began in early 2QFY11, its mines are still closed
due to operational difficulties. The hardening iron ore prices in the last two years
have dented SEML's performance.
 To utilize its captive iron ore fines, SEML commissioned its 0.6mtpa pellet plant in
FY10. However, the pellet plant continues to operate at low capacity utilization
even after undergoing various technical modifications in the recent quarters. The
ramp up of pellet production is not likely to happen in the next few months. SEML
has paid dearly by the way of lost opportunity over the last few quarters. The
spread between cost of pellet and market price is too large to ignore operational
failure for such a long period. We model in slower ramp-up of the pellet plant in our
estimates (300k tons in FY12 and 360k tons in FY13).
 The captive coal mine at Karwahi, Raigarh continues to operate satisfactorily, with
298k tons of coal production in 9MFY11.
 SEML has recently received consent to operate the third FBC boiler installed at
Raipur, which has taken its captive power generating capacity to 81.5MW. We
expect faster ramp-up of the power unit, enabling captive power for full operations.
Power generation is expected to grow at a CAGR of 14% to 516MU over FY11-13.
 SEML is setting up a greenfield ferroalloy project (125ktpa with 2x33MVA
submerged arc furnace and 80MW CPP) at Vizag at a capex of Rs5.5b. This
project is progressing on schedule to get commissioned by 1QFY13. The company
has already tied up entire debt for the project and has invested Rs1b in terms of
equity (out of Rs1.37b). BTG orders for the 80MW CPP have been placed and
equipment has started arriving at the site.
 SEML is working on numerous projects such as manganese ore mining in Goa,
over 1,800MW of hydro and thermal power projects in Chhattisgarh, and 1.1mtpa
steel project at Raipur, which are in different stages. We expect these projects to
contribute significantly to the consolidated earnings over the next 5-10 years.
 Leverage is likely to remain on the higher side, as the company is investing Rs1.5b-
2b every year on a number of projects that it has undertaken.
 SEML has received Rs920m of preferential equity investment from Asia Minerals,
Hong Kong. This will be invested in its ongoing expansion projects. SEML has
allotted 1.8m shares (at a premium of Rs500/share), diluting equity by 5.3% to
358m in 3QFY11.
 Faster ramp-up of pellet production, re-starting of iron ore mine and timely
completion of Vizag ferro project will drive earnings and help to reduce leverage.
However, in the near term, execution risk remains. Though it has a very rich mineral
portfolio, raw material integration is likely to be lower in the near term. The stock
is trading at 7.7x FY12E EPS and an EV of 8.2x FY12E EBITDA. Maintain Neutral.

Motilal Oswal: Sarda Energy & Minerals -3QFY11 Results Update

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M.Cap. (US$ m) 176.7
 Sarda Energy and Mineral's standalone adjusted PAT for 3QFY11 was Rs55m (down 67% YoY) v/s a loss of Rs4m
in 2QFY11.
 Net sales increased 7% QoQ to Rs2.1b. Steel division revenue grew 10% QoQ to Rs1.1b due to higher steel
volumes. The company produced more steel and sold less sponge iron during the quarter. Saleable steel product
volumes grew 49% QoQ to 25,525tons while average realization declined 2% QoQ to Rs26,750/ton. Sponge realization
was up 7% QoQ at Rs16,900/ton.
 Ferro alloy division revenue grew 2% QoQ to Rs1.05b on higher volumes. Ferro alloy sales tonnage increased 8%
QoQ to 16,441tons while realization declined 6% QoQ to Rs59,783/ton.
 EBITDA increased 27% QoQ to Rs205m, well below our estimate of Rs378m due to poor performance from ferro
alloy division. Steel division EBIT increased 3x QoQ to Rs110m, while ferro alloy division EBIT declined 38% QoQ to
Rs85m. The sharp decline in ferro alloy EBIT was due to decline in realization and higher raw material prices. Landed
iron ore cost also increased 7% QoQ to Rs8,075/ton.

Sarda Energy and Minerals– 3QFY2011 Result Update Angel Broking maintains a Buy on Sarda Energy and Minerals with a Target Price of Rs. 294.

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Sarda Energy and Minerals– 3QFY2011 Result Update

Angel Broking maintains a Buy on Sarda Energy and Minerals with a Target Price of Rs. 294.

Sarda Energy and Minerals (SEML) reported disappointing set of numbers for
3QFY2011. While net sales increased 38.9% yoy to `214cr, adjusted net profit
declined by 59.7% yoy to `5cr. We remain positive on SEML and recommend a
Buy on the stock.

SARDA ENERGY & MINERALS: Expansion projects: PINC

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Sarda Energy & Minerals (SEML) is a manufacturer of steel
products (sponge iron, billets, ingots, TMT bars), with focus
on exports of ferro alloys. We visited company’s Raipur plant
to view existing operations and to understand its future
expansion projects.

Sarda Energy and Minerals:2QFY11:Motilal Oswal

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 Sarda Energy and Minerals posted adjusted loss of Rs4m (standalone) in 2QFY11, led by higher raw material costs
and lower metal realizations. Reported standalone PAT of Rs176m included Rs162m of forex gains. Other income
included Rs90m of profit on sale of investments.
 Net sales declined 8% QoQ to Rs2b. Revenue from steel division grew 4% QoQ to Rs986m on account of higher
steel volumes. Company produced more steel and sold less sponge (-36% QoQ to 32,832 tonnes) during the quarter.

Sarda Energy and Minerals – 2QFY2011 Result Update - Angel Broking

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Topline boosted by higher sales volume: SEML’s 2QFY2011 top line grew by
96.3% yoy to `200cr on the back of a) higher ferro alloy and billet sales volume
and b) improved realisations. During the quarter, ferro alloy sales grew by 97.2%
yoy and 10.3% qoq to 15,217 tonnes and billet sales increased to 17,078 tonnes
(1,829 tonnes in 2QFY2010 and 5,104 tonnes in 1QFY2011). Ferro alloy
realisations increased by 34.5% yoy to `67,385/tonne. During the quarter, SEML
produced 18,741 tonnes (54,615 tonnes in 1QFY2011) of pellets as the plant
was shut down for 49 days for maintenance work.

Margins impacted due to higher iron ore and manganese ore cost: On a
sequential basis, margins declined to 8.1% as compared to 23% in 1QFY2011
because of higher iron ore and manganese ore cost. However, on a yoy basis,
raw-material costs (as a percentage of sales) declined to 70% (74.5% in
2QFY2010) on account of usage of captive coal from Karwahi mine. EBITDA
grew by 162.1% yoy to `16cr as margins expanded by 202bp yoy (2QFY2010
margins were impacted due to fire). Other income increased by 451.2% yoy to
`12cr, which included profit on sale of marketable investments. Adjusted for forex
gain of `16cr, net profit increased to `1.4cr (loss of `4cr in 2QFY2010), but
declined by 94.9% qoq.

Outlook and valuation: We believe SEML is well poised to benefit from
backward integration into coal and iron ore, commercial production of pellets
and increased power and ferro alloy production. We maintain Accumulate on the
stock with a Target Price of `290, valuing the stock at 5.0x FY2012E
EV/EBITDA.


Other result highlights
􀂄 During the quarter, SEML produced 18,741 tonnes (54,615 tonnes in
1QFY2011) of pellets as the plant was shut down for 49 days for maintenance
work. Going ahead, pellet production is expected to resume to the levels of
1QFY2011 with an upward bias.
􀂄 Sponge iron sales fell by 30.4% yoy and 35.9% qoq to 32,832 tonnes and
power sales declined by 69.8% yoy and 85.8% qoq due to increased captive
usage in billet production.
􀂄 In the current quarter, though there is some pressure on ferro alloy
realizations, the company expects it to remain at higher levels.
􀂄 The Dongabore iron ore mine is currently not operational; however, the
company is transporting iron ore stock lying at the mine to its plant for captive
consumption. The company expects iron ore mining to start in the coming
quarter.
􀂄 Other expenses were up by 142.7% yoy and 25.4% qoq to `34cr on account
of increased stores and spares consumed in the recently commissioned wire
rod and pellet plant.


Investment rationale
Captive iron ore and coal to lower costs: We expect SEML to earn incremental
EBITDA of `33cr and `36cr in FY2011E and FY2012E, respectively, on account of
securing coal from its captive mines. Moreover, SEML has started shipping iron ore
from its Dongarbore mines, which was affected by Naxal activities last year.
Pellet production to lower raw-material costs: SEML has started commercial
production of its 0.6mn tonne pellet plant in April 2010. Over the last six months,
management has successfully resolved most of the structural problems. We expect
the plant to operate at 45% and 50% utilisation levels in FY2011E and FY2012E,
thereby resulting in savings of `88cr and `105cr, respectively.
Ferro alloy sales volume and power production to increase: Ferro alloy sales
volumes are likely to increase by 58.5% in FY2011E. Further, we expect power
generation to increase by 40.6% yoy as last year’s operations were disrupted by
fire. SEML is expanding its power capacity by a) 50% to 90MW at its Raipur plant
and b) setting up an 80MW plant near its coal mine; we have not factored these
expansions in our estimates, as they are subject to regulatory approvals.


Outlook and valuation
We believe SEML is well poised to benefit from a) backward integration into coal
and iron ore, b) commercial production of pellets and c) increased power and
ferro alloy production. We expect the full benefits of captive coal to reflect in
FY2011E as the coal mine started operations in 3QFY2010. Moreover, an uptick
in ferro alloy prices accompanied by a 58.5% jump in volumes and a 40.6%
increase in power generation is expected to boost EBITDA by 189.6% yoy in
FY2011E to `222cr. We maintain Accumulate on the stock with a Target Price of
`290, valuing the stock at 5.0x FY2012E EV/EBITDA.