Recommendations » India

Electrosteel Castings 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Electrosteel Castings (ECL) reported a strong growth in operating profit mainly due to decline in raw material costs as a percentage of sales. We maintain our Buy recommendation on the stock.

Lower costs lead to higher profits: ECL’s 3QFY2013 net sales increased by 6.5% yoy to Rs.473cr. The company reported a positive EBITDA of Rs.47cr in 3QFY2013 as compared to an EBITDA loss of Rs.1cr in 3QFY2012 due to lower raw material costs and lower other expenditure. The company’s interest costs increased by 142.3% yoy to Rs.27cr whereas the other income rose by 397.5% yoy to Rs.38cr. Consequently, the company posted a positive PAT of Rs.33cr compared to a PAT loss of Rs.11cr in 3QFY2012.

Update on mining projects: Production from coking coal is expected to be ramped up in FY2014. The company has started commercial steel production from some of the facilities in Electrosteel Steels (ESL) from September 2012.

Outlook and valuation: We maintain our positive stance on the company’s initiatives of venturing into steel making through its associate ESL. Further, the company’s backward integration initiatives through the allocation of iron ore (although not factored in our estimates currently) and coking coal mines are expected to result in cost savings from FY2014-15. We maintain our Buy view on the stock with a SOTP target price of Rs.34.