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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'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.
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