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4QFY2012 Result Update | Steel

May 15, 2012

Monnet Ispat
Performance highlights
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 4QFY12 536 138 25.8 83 4QFY11 446 129 28.9 77 % chg (yoy) 20.4 7.5 (308)bp 8.5 3QFY12 481 125 26.0 73 % chg (qoq) 11.5 10.4 (26)bp 13.7

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Steel 2,888 0.6 561/305 11,582 10 16,328 4,943 MNET.BO MISP@IN

`450 `593
12 Months

Source: Company, Angel Research

Robust top-line performance: Monnet Ispat (MIL) reported robust top-line performance for 4QFY2012. The companys top line grew by 20.4% yoy to `536cr mainly due to increased realizations of sponge iron, which grew by 23.2% yoy to `24,159/tonne. The companys structural steel sales volumes grew by 25.7% yoy to 21,065 tonnes, while power sales volumes declined by 23.5% yoy to 180mn units. Net realization on power sales grew by 14.3% yoy and 2.7% qoq to `3.6/unit during the quarter. EBITDA increases by 7.5% yoy: Raw-material costs as a percentage of sales increased to 59.8% in 4QFY2012 compared to 55.7% in 4QFY2011. Average iron ore cost increased by 3.1% yoy and 7.8% qoq to `6,761/tonne in 4QFY2012. Hence, EBITDA increased only by 7.5% yoy to `138cr, while EBITDA margin contracted by 308bp yoy to 25.8%. Interest expenses increased by 34.2% yoy to `24cr, while other income increased by 97.5% yoy to `13cr. Consequently, net profit grew by 8.5% yoy to `83cr.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 49.4 3.1 36.3 11.2

Power project delayed by six months: MIL plans capex of `1,500cr for its
upcoming power plants and `800cr for steel capacity expansion during FY2013. The implementation of the 1,050MW power plant at Angul has been delayed by six months and is now expected to be operational in 2HFY2014. 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 `593. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Adj. net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Abs. (%) Sensex MIL

3m

1yr

3yr 34.1 (11.9)

(10.3) (11.9) (9.9) (12.8)

FY2011 1,570 6.0 281 (2.2) 43.7 28.6 10.3 1.4 14.9 9.2 2.8 9.6

FY2012E 1,901 21.1 306 8.9 47.6 26.3 9.5 1.2 13.8 7.7 2.5 9.7

FY2013E 2,989 57.3 383 25.1 57.2 23.7 7.9 1.1 15.1 9.2 1.7 7.3

FY2014E 3,625 21.3 446 16.3 66.5 25.9 6.8 0.9 15.3 11.7 1.3 5.0

Bhavesh Chauhan
Tel: 022- 39357800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357600 Ext: 6841 Vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

Monnet Ispat | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance (Standalone)


Y/E March (` cr) 4QFY12 536 321 59.8 22 4.1 56 10.5 399 74.4 137 25.6 1 138 25.8 24 19 13 0 108 20.1 25 23.0 83 4QFY11 446 248 55.7 20 4.4 36 8.1 317 71.1 129 28.9 0 129 28.9 18 18 6 0 99 22.2 22 22.6 77 yoy (%) 20.4 29.2 10.7 55.1 25.8 6.9 7.5 34.2 4.4 97.5 9.1 11.0 8.5 3QFY12 481 288 59.9 23 4.9 30 6.2 356 74.0 125 26.0 125 26.0 19 19 11 0 98 20.4 25 25.5 73 qoq (%) 11.5 11.4 (6.7) 88.5 12.1 9.8 10.4 28.9 (1.0) 18.5 10.0 (1.1) 13.7

Net sales Raw material % of net sales Staff cost % of net sales Other expenditure % of net sales Total expenditure % of net sales Operating profit OPM (%) Other operating income EBITDA EBITDA margin (%) Interest Depreciation Other income Exceptional items Profit before tax % of net sales Tax % of PBT Profit after tax
Source: Company, Angel Research

Robust 4QFY2012 top-line performance


MILs net sales grew strongly by 20.4% yoy to `536cr for 4QFY2012. Growth was mainly driven by the 23.2% yoy increase in sponge iron realization to `24,159/tonne. The companys structural steel sales volumes grew by 25.7% yoy to 21,065 tonnes, while power sales volumes declined by 23.5% yoy to 180mn units. Net realization on power sales increased by 14.3% yoy and 2.7% qoq to `3.6/unit during the quarter.

Exhibit 2: Quarterly production volume


(tonnes) Sponge iron Steel (basic) Steel (structural) Ferro alloy Power (mn units) 4QFY11 20,701 18,989 2,596 272 1QFY12 19,075 19,005 2,173 209 2QFY12 19,855 19,010 1,966 238 3QFY12 4QFY12 yoy (%) qoq (%) 2.8 41.5 31.7 (0.3) (17.3) 0.7 39.1 35.5 14.1 21.4 21,058 18,465 2,267 185 29,284 25,012 2,587 225 190,360 165,857 186,557 194,171 195,609

Source: Company, Angel Research

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

Exhibit 3: Quarterly sales volume


(tonnes) Sponge iron Steel (basic) Steel (structural) Ferro alloy Power (mn units) 4QFY11 16,756 2,604 235 1QFY12 17,086 1,542 175 2QFY12 664 17,255 2,049 176 3QFY12 2,680 19,862 2,034 172 4QFY12 2,476 21,065 2,147 180 yoy (%) qoq (%) 1.8 25.7 (17.5) (23.5) (1.6) (7.6) 6.1 5.6 4.4 155,196 150,578 159,906 160,521 157,998

Source: Company, Angel Research

Exhibit 4: Quarterly average realization


(`/tonne) Sponge iron Steel (basic) Steel (structural) Ferro alloy Power (`/unit) 4QFY11 19,617 31,357 54,729 3.1 1QFY12 19,776 31,693 52,270 3.4 2QFY12 21,002 25,904 32,176 63,397 2.9 3QFY12 21,004 30,741 33,197 39,503 3.5 4QFY12 yoy (%) qoq (%) 24,159 30,845 35,174 49,539 3.6 23.2 12.2 (9.5) 14.3 15.0 0.3 6.0 25.4 2.7

Source: Company, Angel Research

EBITDA grew by 7.5% yoy


Raw-material costs as a percentage of sales increased to 59.8% in 4QFY2012 from 55.7% in 4QFY2011. Average iron ore cost increased by 3.1% yoy and 7.8% qoq to `6,761/tonne in 4QFY2012. Hence, EBITDA increased only 7.5% yoy to `138cr, while EBITDA margin contracted by 308bp yoy to 25.8%. Interest expenses increased by 34.2% yoy to `24cr, while other income increased by 97.5% yoy to `13cr. Consequently, net profit grew by 8.5% yoy to `83cr.

Exhibit 5: EBITDA margin trend


160 140 120 100 35 30 25 20

Exhibit 6: Net profit trend


25 80 70 60 20 15 10 5 0 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Net Profit (LHS) Net margin (RHS)

(` cr)

(` cr)

(%)

80 60 40 20 0 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 EBITDA (LHS) EBITDA margin (RHS)

15 10 5 0

40 30 20 10 0

Source: Company, Angel Research

Source: Company, Angel Research

Power project delayed by six months


The company plans capex of `1,500cr for its upcoming power plants and `800cr for steel capacity expansion during FY2013. The implementation of the 1,050MW power plant at Angul has been delayed by six months and is now expected to be operational in 2HFY2014.

May 15, 2012

(%)

50

Monnet Ispat | 4QFY2012 Result Update

Investment rationale
Steel expansion of 1.5mn tonnes: MIL is setting up a 1.5mn steel plant through the BF-EAF route. Total capex for the project is pegged at `3,600cr. Various plants including sinter plant, oxygen furnace, steel melting shop and plate mill are expected to begin progressive commissioning in mid-FY2013. However, full benefits of these facilities would be witnessed in FY2014. Significant value unlocking lies ahead in Monnet Power: MIL 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. MIL has diluted a 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 in 2HFY2014. With captive coal blocks backing this project, we expect robust profitability from the power business. MIL also aims to raise its capacity further by 660MW. However, the company is yet to achieve financial closure for the same. Indonesian coal mine could provide further upsides: MIL had acquired two coal assets in Indonesia during CY2011, which has potential reserves of 65mn tonnes. MIL is currently in the process of developing this mine.

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

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 `593, valuing the steel business at 4.0x FY2014E EV/EBITDA and investment in Monnet Power at 2.0x P/BV.

Exhibit 7: SOTP valuation


Steel business Stake in Monnet Power Target price (`)
Source: Company, Angel Research

4.0x FY2014E EV/EBITDA 2.0x P/BV

306 287 593

Exhibit 8: EPS Angel forecast vs. consensus


Year FY2013E FY2014E
Source: Bloomberg, Angel Research

Angel
57.2 66.5

Bloomberg consensus
54.8 63.4

Variation (%)
4.4 5.0

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

Exhibit 9: EV/EBITDA band


12,000 10,000 8,000

(` cr)

6,000 4,000 2,000 0

Oct-08

Oct-09

Oct-10

Oct-11

Jan-09

Jan-10

Jan-11

Apr-08

Apr-09

Apr-10

Apr-11

Jan-12
Jan-12
Jan-12

2x

5x

8x

11x

14x

Source: Bloomberg, Angel Research

Exhibit 10: P/E band


1,200 1,000 800

(`)

600 400 200 0

Oct-08

Oct-09

Oct-10

Oct-11

Jan-08

Jan-09

Jan-10

Apr-08

Apr-09

Apr-10

Jan-11

Apr-11

5x

10x

15x

20x

Source: Bloomberg, Angel Research

Exhibit 11: P/BV band


900 800 700 600 500
(`)

400 300 200 100 0


Apr-08 Apr-09 Apr-10 Apr-11 Oct-08 Oct-09 Oct-10 Oct-11 Apr-12 Jul-08 Jul-09 Jul-10 Jan-09 Jan-10 Jan-11 Jul-11

0.5x
Source: Bloomberg, Angel Research

1.0x

1.5x

2.0x

May 15, 2012

Apr-12

Jul-08

Jul-09

Jul-10

Jul-11

Apr-12

Jul-08

Jul-09

Jul-10

Jul-11

Monnet Ispat | 4QFY2012 Result Update

Exhibit 12: Recommendation summary


Companies Tata Steel JSW Steel SAIL Monnet Ispat CMP (`) Target Price Reco. (`) Mcap Upside (` cr) P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%) (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E

413 634 87 450

503 Buy 102 Buy 593 Buy

39,630 35,852 2,888

22 17 32

9.7 8.5 6.6 7.9

8.2 7.1 6.0 6.8

1.0 0.8 0.8 1.1

0.9 0.7 0.7 0.9

6.0 4.0 5.9 7.3

4.6 3.7 4.9 5.0

10.8 10.7 12.4 15.1

14.4 11.6 12.3 15.3

9.4 11.2 9.5 9.2

12.3 11.5 11.0 11.7

- Neutral 19,068

Source: Company, Angel Research

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

Profit & loss statement (Standalone)


Y/E March (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net sales) Depreciation EBIT % chg (% of Net sales) Interest charges Other income (% of PBT) Share in profit of asso. Recurring PBT % chg Extra. Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) Add: Earnings of asso. Less: Minority interest Extra. Expense/(Inc.) PAT after MI (reported) ADJ. PAT % chg (% of Net sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 1,711 162 1,549 1,549 33.6 1,174 911 136 61 66 375 48.7 24.2 65 309 49.1 20.0 71 48 16.6 286 29.7 16 271 55.0 20.3 216 216 232 39.4 15.0 47.4 45.4 54.6 FY2010 1,567 86 1,481 1,481 (4.4) 1,017 735 146 73 62 464 23.8 31.3 72 392 26.8 26.5 74 32 9.1 350 22.1 184 331 60.4 18.2 269 269 288 24.1 19.4 56.1 46.2 1.7 FY2011 1,691 122 1,570 3.6 1,573 6.2 1,124 889 0 75 160 449 (3.3) 28.6 74 375 (4.4) 23.9 44 30 8.3 362 3.4 362 80 22.2 281 281 281 (2.2) 17.9 47.3 43.7 (2.2) FY2012 2,064 163 1,901 3.0 1,904 21.0 1,405 1,131 0 88 186 499 11.2 26.3 75 424 13.1 22.3 68 41 10.4 397 9.9 397 91 22.9 306 306 306 8.9 16.1 47.6 47.6 8.9 FY2013E 3,225 235 2,989 2,989 57.0 2,279 1,547 269 164 299 710 42.2 23.7 118 592 39.6 19.8 132 37 7.5 497 25.1 497 114 22.9 383 383 383 25.1 12.8 59.5 57.2 20.2 FY2014E 3,910 285 3,625 3,625 21.3 2,687 1,799 326 199 362 938 32.1 25.9 158 780 31.8 21.5 235 33 5.8 1.0 579 16.3 579 133 22.9 446 446 446 16.3 12.3 69.3 66.5 16.3

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

Balance sheet (Standalone)


Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Share warrants Minority interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-progress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Mis. exp. not written off Total assets 1,366 240 1,127 310 216 1,222 246 683 294 232 991 83 2,725 1,439 311 1,128 721 545 1,143 205 590 348 268 874 18 3,288 1,477 383 1,094 1,513 550 2,092 688 853 550 345 1,747 4,903 3,077 458 2,619 713 800 2,427 925 853 649 387 2,040 6,172 4,077 576 3,501 413 800 2,455 785 853 816 451 2,004 6,717 4,427 734 3,693 33 800 2,549 787 853 909 450 2,100 6,625 48 1,238 1,286 1,325 114 2,725 54 1,592 1,646 27 1,495 120 3,288 64 2,026 2,090 0 2,672 141 4,903 64 2,294 2,359 3,672 141 6,172 64 2,640 2,704 3,872 141 6,717 64 3,048 3,112 3,372 141 6,625 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

May 15, 2012

Monnet Ispat | 4QFY2012 Result Update

Cash flow statement (Standalone)


Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash flow from operations (Inc.)/ Dec. in fixed assets (Inc.)/ Dec. in investments (Inc.)/ Dec. in loans and adv. Other income Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid Others Cash flow from financing Inc./(Dec.) in cash Opening cash bal. Closing cash bal. FY2009 271 65 (280) 45 31 70 (155) (44) (77) 6 (270) 40 133 28 69 75 (125) 371 246 FY2010 FY2011 FY2012E FY2013E FY2014E 331 72 78 61 64 478 (73) (412) (330) 15 (799) 151 216 28 58 281 (40) 246 205 362 74 (348) (27) 86 (25) (39) (792) (5) 22 (814) 10 1,177 (135) 1,322 483 205 688 397 75 (57) 91 324 (1,600) 800 (250) (1,050) 1,000 38 962 237 688 925 497 118 (103) 114 398 (1,000) 300 (700) 200 38 162 (140) 925 785 579 158 (94) 133 510 (350) 380 30 (500) 38 (538) 2 785 787

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Monnet Ispat | 4QFY2012 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of debt (post tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

9.9 7.3 1.7 1.1 2.0 8.1 1.1 47.4 45.4 61.9 5.0 268.2 20.0 79.7 0.7 11.2 4.6 0.7 15.7 12.4 16.2 18.2 1.2 80 26 50 49 0.7 2.3 4.4

10.1 6.8 1.5 1.1 2.2 6.9 1.0 56.1 44.7 65.9 5.0 307.1 26.5 81.8 0.5 11.5 4.3 0.4 14.8 13.0 17.3 18.2 1.1 112 32 60 49 0.4 1.6 5.3

10.3 8.2 1.4 1.1 2.8 9.6 0.9 47.3 43.7 55.2 5.0 324.8 23.9 77.8 0.4 8.0 1.6 0.7 12.4 9.2 14.8 14.9 1.1 141 44 78 68 0.7 3.2 8.6

9.5 7.6 1.2 1.1 2.5 9.7 0.8 47.6 47.6 59.3 5.0 366.5 22.3 77.1 0.4 6.9 1.7 0.8 11.3 7.7 11.7 13.8 0.8 135 40 75 74 0.8 3.9 6.2

7.9 5.8 1.1 1.1 1.7 7.3 0.8 59.5 57.2 77.8 5.0 420.2 19.8 77.1 0.5 8.2 2.7 0.8 12.8 9.2 11.8 15.1 0.8 125 35 70 57 0.8 3.2 4.5

6.8 4.8 0.9 1.1 1.3 5.0 0.7 69.3 66.5 93.7 5.0 483.6 21.5 77.1 0.6 10.2 5.0 0.6 13.2 11.7 13.8 15.3 0.9 120 32 60 57 0.6 1.9 3.3

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11

Monnet Ispat | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Monnet Ispat No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 15, 2012

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