Angel Broking - Monnet Ispat - RU4QFY2012- Result Updates - PDF link

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Monnet Ispat - RU4QFY2012

Monnet Ispat: ::Motilal Oswal

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 Monnet Ispat (MISP) posted adjusted PAT of INR769m (up 5% QoQ and 25% YoY), higher than our estimate of
INR658m.
 Net sales grew 7% QoQ (27% YoY) to INR4.6b. Sponge iron revenue grew 13% QoQ (33% YoY) to INR3.4b, driven
by higher prices and higher volumes.
 Sponge iron production and prices boosted profit. Steel EBITDA of INR1b contributed 85% to total EBITDA.
 Performance of the power segment was dragged by poor rates. Power rates declined 15% QoQ to INR2.9/kwh.
 Utkal Coal Block has received all the permissions and MISP expects to sign the mining lease soon. We expect the
coal block to start production along with the 1,050MW power plant commissioning schedule of March 2013.
 1.5mtpa steel project - the forward integration cum expansion of sponge iron capacities - too is likely to be
commissioned in phases during FY13.
 Net debt increased by INR7.3b to INR27.6b in 1HFY12 and capex during the period was ~INR8.3b.
 The stock trades at 8x FY13E EPS and at an EV of 9.2x FY13E EBITDA. Maintain Neutral.

Buy Monnet Ispat:: 2QFY2012 Result Update:: Angel Broking

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Robust top-line performance: For 2QFY2012, Monnet Ispat (MIL) reported net
sales growth of 27.1% yoy to `459cr. Growth was mainly driven by the 30.8%
increase in sponge iron realization to `21,002/tonne and the 43.7% yoy increase
in structural steel realization to `32,176/tonne. Net realization on power sales
dipped by 32.1% yoy to `2.9/unit during the quarter.
EBITDA grew by 14.1% yoy: Raw-material cost as a percentage of sales increased
to 59.8% in 2QFY2012 compared to 56.1% in 2QFY2011. Hence, EBITDA
increased by only 14.1% yoy to `119cr, while EBITDA margin contracted by
298bp yoy to 26.1%. Net profit grew by 17.3% yoy to `77cr during the quarter.
Progress on captive coal blocks satisfactory: MIL had received stage-II of forest
clearance for its Utkal mine (reserves of 117mn tonnes) during 2QFY2012. The
company will now sign the mining lease for Utkal coal block since it has received
all approvals. The company expects to sign the mining lease for Mandakini coal
block in 2HFY2013. The company reiterated that both the coal blocks would be
ready for production before the completion of the power plant.
Outlook and valuation: MIL is on the verge of a massive expansion in its steel
business. The long-term stock performance will be determined by the timely
expansion of the 1.5mtpa steel plant and unlocking of value in Monnet Power,
which is implementing the 1,050MW power project. Although there could be
some delays in the commencement of these projects, most of these projects would
be backed by captive resources, thus ensuring robust profitability. Hence,
we recommend Buy on the stock with a target price of `528.

Motherson Sumi (MOSS.BO, Buy, PT Rs280, 46% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• A leading Indian auto parts maker evolving into a major global
supplier (26.0% EPS CAGR in FY11-13E)
–2009 acquisition of Visicorp (now SMR), market share gain,
and global presence
• Turnaround of SMR, margin improvement and new order flow -
c€800m of orders over the medium to long term. Expanding
content per car, new JVs and potential acquisitions
• Advantageous product portfolio of mirrors (55.5% of FY11
sales), wiring harnesses (30.4% of FY11 sales), and polymer
components provides potential to expand content per car
• High FY12 ROE of 28.5% driven by strong operations, capital
discipline (no capital raising in last 10 years except FCCB in FY06)
• Valuations expected to remain high driven by earnings
momentum rather than multiples re-rating
• Shareholding: promoters – 65%
• Valuation: DCF using UBS’s VCAM tool (assume a WACC of
13.1% and terminal sales growth of 2%). Implied FY13E PE of
17.7x

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Monnet Ispat (MNET.BO, Buy, PT Rs 730, 51% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• Robust historical growth -- FY06-FY11 Revenue /PAT at 24% /
22% CAGR.
• 290mt minable coal reserves, operates largest underground
mine in India. Raw material backward integration to drive
profitability and shareholder value.
• Expansion at existing Raigarh plant -- Equipment ordered and
on site. 80MW power plant & 1.5m mt steel capacity to
commission in FY12 and FY13.
• Angul (Orissa) power expansion (1050 MW) --Land/approvals in
place; financing tied up; Captive coal. Completion expected in
FY14.
• Has raised capital for power expansion in Angul (Orissa).
• Shareholding: promoters – 50%
• Valuation: SOTP methodology based on multiple based
approach. We value the power business at 7x EV/EBITDA, the
steel business at 5.5x EV/EBITDA on FY12E financials, and the
equity invested in its uncommissioned power plant at 2.2x P/BV.

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Monnet Ispat: Coal mining to drive growth -. Motilal Oswal

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Coal mining to drive growth
 Monnet Ispat operates a 0.8mtpa sponge iron plant, a 0.3mtpa steel plant and a
150MW captive power plant (CPP) in the mineral rich state of Chhattisgarh. It is
setting up a 1.5mtpa integrated steel project at Raigarh and is also venturing into
the power generation business through a subsidiary to set up 1,050MW of IPP at
Angul, Orissa.
 0.5mtpa of its total DRI capacity and 90MW CPP is strategically located close to
its coal mines in Raigarh. Rest of its DRI facilities is located at Raipur. It produces
~1m ton of coal from its existing underground mine at Mand Raigarh Coalfields,
which improves its overall margins in the DRI as well as power business.
 Monnet is setting up a 1.5mtpa integrated steel project in Raigarh at a capex of
Rs25b, which includes a 0.6mtpa blast furnace, 1.2mtpa pellet plant, 0.9mtpa
sinter plant, 0.4mtpa coke oven plant, 0.75mtpa finished mills and 80MW CPP.
 Monnet currently sells ~2/3rd of the power it generates at merchant rates. In the
first phase of expansion, it plans an 80MW CPP, to be commissioned in 1QFY12.
This will drive earnings in the near term.
 The steel project is expected to start commissioning from September 2011 starting
with blast furnace and steel melting shop followed by finished mills. Timely
commissioning of the pellet plant will improve margins.
 Captive iron ore mine at Rameshwaram Steel and Power (97% subsidiary) is
expected to start operations by 1QFY13. The mine has high quality reserves (30m
tons; Fe grade 64-66) with annual extraction capacity of 0.8mtpa. Land acquisition
is under process and clearance from the Ministry of Environment and Forests is
expected in 2QFY11.
 Monnet has received environment clearance for two of its coal mines recently -
Utkal B2 and Mandakini Block in Orissa. Last stage of forest clearance is expected
soon and mining operations can be started immediately at the Utkal B2 mine, as
it is an open cast mine.
 Monnet is also venturing into the power generation business by setting up a pithead
1,050MW power project near its coal block at Angul, Orissa through its 87.5%
subsidiary, Monnet Power Company Limited. Financial closure for Rs50b capex
has been achieved, while ~85% of land has been already acquired. Order for the
BTG package was placed with BHEL in June 2009. First phase of the project
(525MW) is expected to be commissioned by January 2013. PPA has been signed
with PTC for 400MW and with the state for 300MW. Balance 32% power will be
sold in the merchant market. This project is expected to have high profitability due
to low cost structure.
 In the longer term, Monnet plans to augment power generation capacity to
3,000MW, which will include 600MW unit at the existing 1,050MW project.
 Monnet has recently merged Mounteverest Trading and Investment Company
(promoter group company involved in acquisition of Orissa Sponge Iron and Steel
Limited) with itself. Thus, Rs3.5b investment in Orissa Sponge has been brought
to the books of Monnet Ispat. Shareholders of Mounteverest have received 4.7m
shares i.e. ~7% of Monnet's expanded equity.


 Orissa Sponge Iron has iron ore and coal mines, with reserves of 120m tons and
125m tons, respectively in Orissa. It has undertaken Rs12b capex to expand steel
making capacity to 1mtpa. Blast furnace capacity of 0.6mtpa has been ordered
though some other facilities are yet to be ordered.
 During 9MFY11, 4.7m shares were issued on conversion of warrants, 4.7m shares
on merger of Mounteverest and 2.2m shares on conversion of FCCB. As a result,
paid up number of shares has increased from 52.3m to 63.9m. Promoter holding has
increased from 44.3% to 51.1%.
 We expect Monnet's earnings to grow at a CAGR of 12% over FY10-13. We value
the stock at Rs510 based on 6.5x FY12E core business EBITDA, Rs23b for its
equity stake of 87.5% in Monnet Power (1,050MW project) and Rs4.2b for Orissa
Sponge. The stock is trading at 9.6x FY12E EPS and an EV of 11.8x FY12E EBITDA.
Though our target price still does not fully capture the value of its coal mining assets,
there remains project execution risk. Maintain Neutral.

Monnet Ispat & Energy – 3QFY2011 Result Update -Angel Broking

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 Monnet Ispat & Energy – 3QFY2011 Result Update

Angel Broking recommends a Neutral on Monnet Ispat & Energy.

Subdued quarter: For 3QFY2011, Monnet Ispat (MIEL) reported a 6.7% yoy and
3.7% qoq decline in net revenue to `347cr. Sponge iron sales volume grew by
5.7% yoy to 148,242 tonnes (down 5.6% qoq), while average realisations for
sponge iron increased by 33.4% yoy and 11.0% qoq to `17,831/tonne. Power
sales volume declined by 13.2% yoy to 210mn tonnes but increased by 6.1% qoq.
Power realisations fell by 30.3% yoy and 21.3% qoq to `3.4/unit.
Margin expands due to lower cost: EBITDA margin expanded by 172bp yoy and
302bp qoq to 32.0% due to lower raw-material cost, which fell by 11.3% yoy and
11.6% qoq to `179cr. Interest expense declined by 66.5% yoy and 55.0% qoq to
`5cr, while other income increased by 26.5% yoy to `6cr. However, tax rate for
the quarter increased to 19.8% v/s 16.9% in 3QFY2010. Consequently, net profit
grew by 3.2% yoy and 7.0% qoq to `70cr.
Outlook and valuation: We have lowered our profitability estimates for FY2012 to
account for higher key input prices. However, we believe while the 80MW power
capacity expansion will drive the earnings momentum in the near term, long-term
stock performance will be determined by the timely expansion of MIEL’s 1.5mtpa
steel plant and unlocking of value in Monnet Power. We recommend Neutral on
the stock with a fair value of `559, valuing the steel business at 6.0x FY2012E
EV/EBITDA and investment in Monnet Power at 1.8x P/BV.

Subdued 3QFY2011 top-line performance

For 3QFY2011, MIEL’s net revenue declined by 6.7% yoy and 3.7% qoq to `347cr.

Sponge iron production during the quarter fell by 8.2% yoy to 163,357 tonnes (flat

qoq), while sales volume grew by 5.7% yoy to 148,242 tonnes (down 5.6% qoq).

However, sponge iron realisations grew by 33.4% yoy and 11.0% qoq to

`17,831/tonne. Further, power production was lower by 20.2% yoy to 228mn

units (up 6.1% qoq) and power sales volume fell by 13.2% yoy to 210mn tonnes

(up 6.1% qoq). Power realisations fell by 30.3% yoy and 21.3% qoq to `3.4/unit.

Margin expands due to lower cost
During the quarter, raw-material cost declined by 11.3% yoy and 11.6% qoq to
`179cr. Moreover, staff cost declined by 8.0% yoy and 5.4% qoq to `17cr and
other expenditure was down by 6.0% yoy (up 15.2% qoq) to `30cr. As a result,
EBITDA margin expanded by 172bp yoy and 302bp qoq to 32.0%. Interest
expense during the quarter declined by 66.5% yoy and 55.0% qoq to `5cr, while
other income increased by 26.5% yoy to `6cr. However, tax rate for the quarter
increased to 19.8% v/s 16.9% in 3QFY2010. Thus, net profit for the quarter grew
by 3.2% yoy and 7.0% qoq to `70cr.



Key highlights
􀂄 MIEL’s board has approved the setting up of a 660MW power plant at Angul,
in addition to the 1,050MW (2x525MW) power plant, which is already under
construction.
􀂄 MIEL’s steel production was lower in 3QFY2011 as the company deliberately
shut down its steel operations on account of prevailing lower prices of its
products during 3QFY2011. However, steel product prices have increased
since January 2011 and, hence, we expect steel production and sales to pick
up from 4QFY2011.
􀂄 Steel (structural) realisations declined by 57.8% qoq and 62.3% yoy during
3QFY2011 due to higher sales of lower-quality steel (rejects).
􀂄 MIEL has completed ~40% of land acquisition for its Mandakni coal mine in
Orissa. The company received environment clearance for this mine during
October 2010, while the company is still awaiting forest clearance.
􀂄 As of December 31, 2010, MIEL had debt and cash and equivalents of
~`1,500cr and ~`210cr, respectively.
Investment rationale
􀂄 Expanding power capacity by 80MW: MIEL is expanding its power capacity by
80MW at Raigarh. The power plant, which is based on coal and midlings, is
expected to be operational by 4QFY2011.
􀂄 Steel expansion of 1.5mn tonnes: MIEL is setting up a 1.5mn steel plant
through the BF-EAF route. Total capex for the project is pegged at `2,400cr,
with `1,400cr expected to be funded through debt and the balance through
equity. MIEL has tied up US $162mn of foreign currency loan and is
negotiating with banks for the balance amount. The plant is expected to begin
progressive commissioning in FY2012. The pig iron and sinter plants are
expected to be commissioned in 1QFY2012, while the sponge iron, SMS and
finished steel plants are expected to be commissioned in 3QFY2012.
The pellet and coke oven plants are likely to go on stream during FY2013.
􀂄 Significant value unlocking lies ahead in Monnet Power: MIEL is setting up a
1,050MW (2x525) power plant through Monnet Power. The plant is being set
up at a cost of `5,000cr, with equity contribution of `1,200cr and the balance
being funded through debt. MIEL recently diluted 12.5% stake to Blackstone
for a consideration of `275cr, thus valuing the total equity stake at `2,200cr.
We expect the plant to be operational during FY2013.



Outlook and valuation
We believe the timely execution of MIEL’s steel and power projects can provide a
significant upside from current levels. While the 80MW power capacity expansion
will drive the earnings momentum in the near term, long-term stock performance
will be determined by timely expansion of the company’s 1.5mtpa steel plant and
unlocking of value in Monnet Power, which is implementing the 1,050MW power
project. We recommend Neutral on the stock with a fair value of `559, valuing the
steel business at 6.0x FY2012E EV/EBITDA and investment in Monnet Power at
1.8x P/BV.



We have slightly lowered our net sales estimates for FY2012 as we now expect
lower realisation on power sales. Also, we have lowered our profitability estimates
for FY2012 to factor in higher prices of iron ore and coking coal (key inputs)
during FY2012.

Monnet Ispat -UBS: India Mid-Caps- Top Alpha IDEAS

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Monnet Ispat
1.1050 MW power plant at Angul district in Orissa is progressing well –
a. 1500 tonnes of equipment is on site. BHEL is working on the boiler.
b. The company has signed additional PPA for 425MW with the state of WB
at Rs 3.2/Unit.
c. The company has drawn down debt and PE funds for power plant
construction.

MONNET ISPAT AND ENERGY: Expansion projects on schedule: PINC

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Expansion projects on schedule
We visited Monnet’s (MIEL) Raigarh plant and saw their
existing operations and upcoming expansion projects. We
also visited the company’s underground coal mine at
Milupara and saw underground mining operation first hand.

UBS: Monnet Ispat -Environmental clearance for coal

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UBS Investment Research
Monnet Ispat 
Environmental clearance for coal 

„ Power and steel expansion in Raigarh on track
Monnet Ispat (MISP) is on track to commission power and steel capacity
expansion at its Raigarh plant. We expect the 80MW power plant expansion to be
commissioned in Q4FY11 and the steel expansion to be commissioned in FY12.

Monnet Ispat- PAT for 2QFY11 declined 10% QoQ:: Motilal Oswal

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 Monnet Ispat's adjusted PAT for 2QFY11 declined 10% QoQ to Rs656m (+2% YoY) due to lower sponge iron and
power volumes. The company had undertaken planned maintenance shutdown for older sponge iron kilns during the
quarter, which impacted power generation.

 Net sales declined 14% QoQ (and 15% YoY) to Rs3.61b. Revenue from sponge iron remained flat QoQ (+48% YoY)
at Rs2.5b, as higher realization (up 8% to Rs16,059/tonne) offset volumes. Sales volumes declined 7% QoQ (grew
11% YoY) to 157,026 tonnes. Production declined 7% QoQ to 162,851 tonnes due to shutdown of old kilns.

Monnet Ispat & Energy – 2QFY2011 Result Update - Angel Broking

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Lower production due to shutdowns: For 2QFY2011, Monnet Ispat (MIEL) posted
net revenue growth of 14.9% to `361cr, down 14.2% qoq. On account of the
maintenance shutdown undertaken during the quarter, sponge iron production
was lower by 5.3% yoy and 7.2% qoq to 162,851 tonnes, whereas power
production was flat yoy and down 15.8% qoq to 215mn units. While sponge iron
sales volume grew by 10.6% yoy to 157,026 tonnes, though down 7.4% qoq,
average realisations for sponge iron increased by 33.9% yoy, down 8.5% qoq.

Monnet Ispat -PAT up YY, below our estimates :BUY: UBS

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UBS Investment Research
Monnet Ispat
PAT up YY, below our estimates
􀂄 Q2FY11 Revenue up 15% YY, PAT up 2% YY
Revenues declined QQ due to lower Power realizations and decline in Sponge Iron
volumes due to maintenance shutdown.
􀂄 MISP on track to achieve our PAT estimate
MISP has already achieved more than half of our PAT estimate of Rs2.64bn for
FY11E. MISP reported PAT of Rs1.38bn during H1FY11. The PAT will be
boosted in Q4FY11E with commissioning of the 80MW power plant in Raigarh.
􀂄 Thesis is intact – project execution remains on track
We believe the project executions are on track at Raigarh, Raipur and also at Angul
district in Orissa.
􀂄 Valuation
We maintain a Buy rating on the stock and Rs730 price target. We continue to
value the power business at 7x EV/EBITDA, the steel 5.5x EV/EBITDA on
FY12E financials, and the equity invested in its un-commissioned power plant at
2.2x P/BV.

MONNET ISPAT 2QFY11: Valuations rich:: Motilal Oswal

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MONNET ISPAT 2QFY11: Volumes decline due to shutdown; Sponge iron realization up but not margins; Valuations rich

-          Monnet Ispat’s (MISP IN, Mkt Cap US$723m, CMP Rs624, Buy) 2QFY11 adjusted PAT declined 10% QoQ to Rs656m (+2% YoY) due to lower sponge iron and power volumes. Company had undertaken planned maintenance shutdown for older sponge iron kilns during the quarter which impacted volumes.

-          Net sales declined 14% QoQ to Rs3.61b (-15% YoY).

-          Sponge iron volumes declined 7% QoQ to 157,026 tons (+11% YoY); the decline was due to shutdown of old kilns. Revenue from sponge iron remained flat QoQ at Rs2.5b (+48% YoY) as higher realization (up 8% to Rs16,059/ton) offset lower volumes.

-          Revenues from steel products fell 79% QoQ to Rs116m as company produced less steel due to lower margins. Sales volumes declined 73% QoQ to 5,164 tons. Average realization also declined 22% QoQ to Rs22,538/ton.

-          Revenues from the power segment declined 21% QoQ at Rs855m on lower realization and lower sales. Power realization decreased 12% QoQ to Rs4.31/unit (+3% YoY), while company sold 198MU of excess power in 2Q (down 10% QoQ). (The company generates power from waste heat; so, shutdown of kilns affected power generation as well.)

-          EBITDA declined 14% QoQ to Rs1.05b. Margins remained flat at 29% sequentially mainly due to higher sponge iron realization. Iron ore costs increased 13% QoQ to Rs5,039/ton (up 57% YoY).

-          Interest costs were lower sequentially to Rs119m due to higher interest income (Rs19m) on fixed deposits.

-          Other income includes Rs49m of forex gains on outstanding FCCB.

-          Monnet produced 209,460 tons of coal from captive mine, which was 11% lower YoY due to good monsoon season this year.

First Call: Monnet Ispat buy target rs 595

Monnet has a combined capacity of 860,000
TPA of Sponge Iron, 300,000 TPA of Steel,
60,000 TPA of Ferro Alloys and Power
generation facility of 150MW besides
running the largest underground coal mine
in the country.
• Monnet Ispat Ltd, subsidiary Monnet Power
Company Ltd. (MPCL) has executed an
agreement with Blackstone Group whereby
Blackstone has acquired 12.50% equity in
MPCL for an investment of Rs. 275 crores.
• The company is also putting an 80 MW
power plant which will take the total
capacity of power to 230 MW.
• Monnet Ispat & Energy has signed a US $ 1
million deal with Indian Boxing Federation
to become a team and kit sponsor for the
next three years.
• Operating profit and PAT of the company
are expected to grow at a CAGR of 11% and
14% over 2009 to 2012E respectively.