Monnet Ispat reported net sales growth of 1.6% yoy to 427cr in 1qfy2012. The company has received stage-II of forest clearance for its Utkal Mine. The 80MW power capacity expansion is expected to drive the stock's earnings momentum in the near term.
Monnet Ispat reported net sales growth of 1.6% yoy to 427cr in 1qfy2012. The company has received stage-II of forest clearance for its Utkal Mine. The 80MW power capacity expansion is expected to drive the stock's earnings momentum in the near term.
Monnet Ispat reported net sales growth of 1.6% yoy to 427cr in 1qfy2012. The company has received stage-II of forest clearance for its Utkal Mine. The 80MW power capacity expansion is expected to drive the stock's earnings momentum in the near term.
Monnet Ispat reported net sales growth of 1.6% yoy to 427cr in 1qfy2012. The company has received stage-II of forest clearance for its Utkal Mine. The 80MW power capacity expansion is expected to drive the stock's earnings momentum in the near term.
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit
1QFY12 427 116 27.2 73
1QFY11 420 121 28.8 73
4QFY11 446 129 28.9 77
% chg (qoq) (4.1) (9.6) (164)bp (4.5)
Investment Period Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Flat top-line performance: For 1QFY2012, Monnet Ispat (MIL) reported net sales growth of 1.6% yoy to `427cr, mainly driven by a 33.6% increase in sponge iron realisation to `19,776/tonne, almost offset by the decline in sales volumes of sponge iron and power. The companys sponge iron sales volume declined by 11.2% yoy to 150,578 tonnes and power sales volume declined by 20.5% yoy to 175mn units. Net realisation of structural steel increased by 10.0% yoy to `31,693/tonne, while power realisation dipped by 29.4% yoy to `3.4/unit. EBITDA declines by 4.1% yoy: On account of lower realisation on power sales, EBITDA declined by 4.1% to `116cr. Other income increased to `11cr compared to `2cr in 1QFY2011. Hence, net profit grew by 0.6% yoy to `73cr in 1QFY2012. Utkal B2 mine received forest stage-II clearance: MIL has received stage-II of forest clearance for its Utkal Mine. The company expects to start production soon after the mining lease is executed by December 2011. Outlook and valuation: MIL is on the verge of a massive expansion in its steel business. The 80MW power capacity expansion is expected to drive MILs earnings momentum in the near term. However, 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. Most of these projects would be backed by captive resources. Hence, we recommend Accumulate on the stock with a target price of `549. Key financials (Standalone) Y/E March (` cr) Net sales % chg Adj. net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 49.4 4.4 32.1 14.1
Please refer to important disclosures at the end of this report
Monnet Ispat | 1QFY2012 Result Update
Exhibit 1: 1QFY2012 performance (Standalone)
Y/E March (` cr) Net sales Raw material % of net sales Power & fuel % of net sales Staff cost % of net sales Other expenditure % of net sales Total expenditure % of net sales Operating profit OPM (%) Other operating income EBITDA EBITDA margin (%) Interest Depreciation Other income Exceptional items Profit before tax % of net sales Tax % of PBT Net profit Source: Company, Angel Research
MILs net sales grew by 1.6% yoy to `427cr mainly driven by the 33.6% increase in sponge iron realisation to `19,776/tonne, almost offset by lower sales volumes of sponge iron and power. MILs sponge iron production declined by 5.5% yoy to 165,857 tonnes, while its power production declined by 17.9% yoy to 209mn units on account of the planned maintenance shut down. The companys sponge iron sales volumes declined by 11.2% yoy to 150,578 tonnes and power sales volumes declined by 20.5% yoy to 175mn units. Net realisation of structural steel increased by 10.0% yoy to `31,693/tonne, while power realisation dipped by 29.4% yoy to `3.4/unit during the quarter.
The companys EBITDA declined by 4.1% to `116cr mainly due to lower realisation on power sales, partially offset by higher realisation on sponge iron. Other income increased to `11cr, compared to `2cr in 1QFY2011. Consequently, net profit increased by 0.6% yoy to `73cr in 1QFY2012.
Utkal B2 mine receives forest stage-II clearance
MIL has received stage-II of forest clearance for its Utkal mine (reserves of 117mn tonnes). The company expects to start production soon after the mining lease is executed by December 2011.
Investment rationale Expanding power capacity by 80MW: MIL is expanding its power capacity by 80MW at Raigarh. The power plant, which is based on coal and midlings, is expected to be operational during August 2011. Steel expansion of 1.5mn tonnes: MIL is setting up a 1.5mn steel plant through the BF-EAF route. Total capex for the project is pegged at `3,000cr. The plant is expected to begin progressive commissioning in late FY2012. However, full benefits of these facilities would be witnessed in FY2014. Significant value unlocking lies ahead in Monnet Power: MIL is setting up a 1,050MW (2x525) power plant through Monnet Power. The plant is being set up at a cost of `5,000cr, with equity contribution of `1,200cr and the balance being funded through debt. MIL recently diluted a 12.5% stake to Blackstone for a consideration of `275cr, thus valuing the total equity stake at `2,200cr. We expect the plant to be operational in FY2014.
August 4, 2011
Monnet Ispat | 1QFY2012 Result Update
Outlook and valuation
MIL is on the verge of a massive expansion in its steel business. The 80MW power capacity expansion is expected to drive MILs earnings momentum in the near term. However, 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 MIL has reported slight delays in the commencement of these projects, most of these projects would be backed by captive resources. Hence, we recommend Accumulate on the stock with a target price of `549, valuing the steel business at 6.0x FY2013E EV/EBITDA and investment in Monnet Power at 2.0x P/BV.
Exhibit 7: SOTP valuation
Steel business Stake in Monnet Power Target price (`) Source: Company, Angel Research
6.0x FY2013E EV/EBITDA 2.0x P/BV
277 272 549
We have increased our sales and net profit estimates to account for higher prices of sponge iron during FY2012 and FY2013.
Exhibit 8: Revision of estimates
(` cr) Net sales EBITDA EBITDA margin (%) PBT Net income Net margin (%) Source: Bloomberg, Angel Research
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Monnet Ispat No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
