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Bhushan Steel 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Bhushan Steel (Bhushan) reported a modest growth in top-line; however, its bottom-line declined 20.0% yoy due to higher depreciation and interest costs. We maintain our Neutral view on the stock.

Net sales up 3.8% yoy: During 3QFY2013, Bhushan’s net sales grew by 3.8% yoy to Rs.2,405cr mainly on account of higher volumes, which however were partially offset by lower realisations. Flat products’ sales volumes increased by 11.6% yoy to 482,949 tonne, while long products’ sales volumes declined by 8.8% yoy to 75,702 tonne in 3QFY2013. However, average gross realizations declined 2.9% yoy to Rs.49,034/tonne.

Higher depreciation and interest costs hit bottom-line: EBITDA increased by 8.0% yoy to Rs.782cr mainly driven by other operating income which grew by 38.2% yoy to Rs.124cr. EBITDA/tonne stood at Rs.13,994 in 3QFY2013 compared to Rs.14,039 in 3QFY2012. Depreciation expense increased 36.8% yoy to Rs.207cr on account of increased capacity. Interest expenses also increased 27.9% yoy to Rs.293cr due to increase in debt. Consequently, reported net profit decreased by 20.0% yoy to Rs.221cr.

Outlook and valuation: We expect Bhushan to complete phase III expansion during 4QFY2013, the benefits of which will be witnessed during FY2014-15. However, we remain concerned over its high leverage (2.6x for FY2013E and 2.3x for FY2014E). Further, at the current market price, the stock is trading at 9.6x FY2013E and 7.3x FY2014E EV/EBITDA, ie at a significant premium over its peers. Hence, we maintain our Neutral view on the stock.