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Recommendations India

Monnet Ispat 3QFY2014 performance highlights and results update

February 20, 2014, Thursday, 05:55 GMT | 00:55 EST | 10:25 IST | 12:55 SGT
Contributed by Angel Broking

For 3QFY2014, Monnet Ispat (MIL) reported a decline in net profit due to rise in depreciation and interest costs as it capitalized some steel facilities. We recommend a Neutral rating on the stock.

Top-line aided by new pig iron plant: MIL’s net sales increased by 39.4% yoy to Rs.640cr as the company’s sales volumes were aided by commencement of commercial production from pig iron plant. MIL’s sponge iron and ferro alloys sales volumes grew by 20.3% and 137.4% yoy, however, realizations fell 11.6% and 20.3% yoy, respectively.

Capitalization of steel facilities hits net profit: Despite a 39.4% yoy increase in sales, the EBITDA increased by only 20.6% yoy to Rs.140cr due to higher raw material costs (+61.7% yoy to Rs.523cr) and staff costs (+36.2% yoy to Rs.38cr). Further, interest expenses and depreciation expenses grew by 127.9% and 55.2% yoy to Rs.66cr and Rs.34cr respectively on account of capitalization of some steel facilities. Consequently, the net profit decreased by 18.5% yoy to Rs.47cr.

Other updates: The company expects its 1050MW power plant to commission in September- October 2014 in two phases.

Outlook and valuation: MIL is on the verge of a massive expansion in its steel business. However, given the weak steel demand in India, the company’s volume growth is likely to suffer over the coming one year. Also, the company is on the verge of commissioning a 1,050MW power project during 2HFY2015. However, there have been delays in the commencement of its power projects as its captive coal mines have faced delays due to slow down in process of regulatory clearances. Moreover, we remain concerned over the high leverage of the company. Hence, we recommend a Neutral rating on the stock.