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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.
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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
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.
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