Sarda Energy 3QFY2014 performance highlights and results update
February 12, 2014, Wednesday, 07:42 GMT | 03:42 EST | 13:12 IST | 15:42 SGT
For 3QFY2014, Sarda Energy (SEML) reported weak results on the top and bottom-line front due to steep fall in sales volumes of iron ore pellets and sponge iron. We recommend a Buy rating on the stock.
Lower volumes drag top-line: During 3QFY2014, SEML’s net sales declined by 16.6% yoy to Rs.309cr, mainly due to decline in pellets and HB wire & Wire rods sales volumes, which were down 65.5% and 12.0% yoy to 27,292 and 22,230 tonnes respectively. Ferro alloy sales volumes were however up by 42.9% yoy to 20,021 tonne but the realizations declined by 1.7% yoy to Rs.63,423/tonne.
Weak operating performance in 3QFY2014: In 3QFY2014 the company’s EBITDA declined 38.4% yoy to Rs.44cr, in line with the decline in top-line. Although the other income increased by 116.8% yoy to Rs.8cr, the net profit declined by 49.5% yoy to Rs.14cr.
Outlook and valuation: After steady decline during 1HCY2013, sponge iron and steel prices have risen since September 2013. Looking ahead, we expect prices to remain stable at the current levels. For SEML, we expect utilization levels to improve in FY2015, thereby leading to higher sales volumes. We recommend Buy on the stock with a SOTP-based target price of Rs.114, valuing the standalone business at 3.0x FY2015E EV/EBITDA. We ascribe 0.6x multiple to its investments as most of SEML’s investments in companies are unlikely to provide meaningful returns during our investment horizon.