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Monnet Ispat 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Robust top-line performance: Monnet Ispat’s (MIL) net sales grew strongly by 38.6% yoy to Rs.481cr during 3QFY2012. Growth was mainly driven by the 17.8% yoy increase in sponge iron realization to Rs.21,004/tonne. The company’s sponge iron sales volumes grew by 8.3% yoy to 160,521 tonnes, while power sales volumes declined by 18.1% yoy to 172mn units. Net realization on power sales grew by 2.3% yoy and 18.5% qoq to Rs.3.5/unit during the quarter.

EBITDA increases 12.9% yoy: Raw-material costs as a percentage of sales increased to 59.9% in 3QFY2012 compared to 51.5% in 3QFY2011. Hence, EBITDA increased by only 12.9% yoy to Rs.125cr, while EBITDA margin contracted by 592bp yoy to 26.0%. Interest expenses increased by 250.7% yoy to Rs.19cr and other income increased by 65.6% yoy to Rs.11cr. Consequently, net profit grew by only 4.1% yoy to Rs.73cr.

Progress on captive coal blocks satisfactory: MIL had received stage-II forest clearance for its Utkal mine during 2QFY2012. The company aims to sign the mining lease for Utkal coal block during 4QFY2012 since it has received all approvals. The company also targets to sign mining lease for Mandakini coal block by 2HFY2013. The company reiterated that both these coal blocks would be ready for production before commercial operations from the power plant.

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 Rs.663.