Recommendations » India

Monnet Ispat 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Monnet Ispat (MIL) reported a disappointing operating performance. We maintain our Buy rating on the stock. Poor top-line performance: MIL’s net sales declined by 4.7% yoy to Rs.459cr, mainly due to decrease in volumes in sponge iron and ferro alloys segments, coupled with decrease in realizations of sponge iron and structural steel segments.

EBITDA decreases by 9.8% yoy: The company’s EBITDA declined by 9.8% yoy to Rs.116cr, while the EBITDA margin contracted by 144bp yoy to 25.3%, mainly due to higher staff cost and other expenditure. Interest and depreciation expenses grew by 53.5% and 16.7% yoy to Rs.29cr and Rs.22cr, respectively. Hence, net profit decreased by 24.8% yoy to Rs.58cr.

Steel projects near completion: MIL is on the verge of conducting (or has conducted) trial runs for its various downstream facilities such as plate mill, blast furnace, sinter plant, rebar mill etc. The benefits from these facilities are likely to accrue from 2HFY2014 in our view.

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 have been 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.318, valuing the steel business at 5.0x FY2014E EV/EBITDA and investment in Monnet Power at 1.5x P/BV.