Monnet Ispat 4Q FY 2013

7/28/2019 Monnet Ispat 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly highlights (Standalone)Particulars (` cr) 4QFY13 4QFY12 yoy (%) 3QFY13 qoq (%)Net sales 432 536 (19.4) 459 (5.8)EBITDA 107 138 (22.7) 116 (7.9)

EBITDA margin (%) 24.7 25.8 (104)bp 25.3 (57)bp

Net profit 53 83 (36.2) 58 (7.9)Source: Company, Angel Research

For 4QFY2013, Monnet Ispat (MIL) reported a disappointing operating

performance. We maintain our Buy rating on the stock.Weak top-line performance: MILs net sales declined by 19.4% yoy to `432cr,mainly due to decrease in structural and basic steel volumes (-41.0% yoy to

13,884 tonne) coupled with decrease in realizations of sponge iron (-18.1% yoy

to `19,788/tonne)

EBITDA decreases by 22.7% yoy: The companys staff costs as a percentage tosales stood at 6.6% compared to 4.1% in 4QFY2012. This led to the EBITDA

declining by 22.7% yoy to `107cr, while the EBITDA margin contracted by 104bp

yoy to 24.7%. Interest and depreciation expenses grew by 24.1% and 20.0% yoy

to `30cr and `23cr, respectively, on account of capitalization of various projects.

Consequently, the net profit decreased by 36.2% yoy to `53cr.

Steel projects near completion: MIL has successfully commissioned its sinter plantand bar mill whereas the plate mill and blast furnace are in advanced stages of

completion. The benefits from these facilities are likely to accrue beginning

FY2015, in our view.

Outlook and valuation: MIL is on the verge of a massive expansion in its steelbusiness. 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 `193, valuing thesteel business at 4.0x FY2015E EV/EBITDA and investment in Monnet Powerat 0.8x P/BV.Key financials (Standalone)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 1,897 1,957 2,326 2,709% chg 20.6 3.2 18.8 16.5

Adj. net profit 289 250 223 289% chg 2.7 (13.3) (10.8) 29.3

EPS (`) 44.9 37.4 33.3 43.1EBITDA margin (%) 25.0 25.4 21.4 23.1

P/E (x) 3.2 3.9 4.3 3.3

P/BV (x) 0.4 0.4 0.3 0.3

RoE (%) 13.0 10.1 8.3 9.9

RoCE (%) 7.2 6.2 5.8 7.7

EV/Sales (x) 1.7 1.8 1.4 1.1

EV/EBITDA (x) 6.9 7.1 6.6 4.7

Source: Company, Angel Research

BUYCMP `144

Target Price `193

Investment Period 12 Months

Stock Info

Sector

Net Debt (` cr) 4,712

Bloomberg Code

Shareholding Pattern (%)

Promoters 49.9

MF / Banks / Indian Fls 1.3

FII / NRIs / OCBs 38.7Indian Public / Others 10.1

Abs. (%) 3m 1yr 3yr

Sensex 1.4 18.6 14.0

MIL (40.8) (58.4) 18.6

MISP@IN

10

19,519

5,921

MNET.BO

916

0.6

395/143

2,697

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Bhavesh ChauhanTel: 022- 39357800 Ext: 6821

[email protected]

Vinay RachhTel: 022- 39357800 Ext: 6841

[email protected]

Monnet IspatPerformance highlights

4QFY2013 Result Update | Steel

June 6, 2013


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Monnet Ispat | 4QFY2013 Result Update

June 6, 2013 2

Exhibit 1:4QFY2013 performance (Standalone)(` cr) 4QFY13 4QFY12 % yoy 3QFY13 % qoq FY2013 FY2012 % yoyNet sales 432 536 (19.4) 459 (5.8) 1,957 1,897 3.2Raw material 257 321 (19.9) 272 (5.4) 1,174 1,142 2.9% of net sales 59.5 59.8 59.3 60.0 60.2

Staff cost 29 22 30.8 28 2.1 108 95 14.7

% of net sales 6.6 4.1 6.1 5.5 5.0

Other expenditure 45 56 (19.6) 50 (9.8) 199 186 6.7

% of net sales 10.5 10.5 10.9 10.2 9.8

Total expenditure 331 399 (17.1) 350 (5.4) 1,482 1,423 4.2

% of net sales 76.6 74.4 76.3 75.7 75.0

Operating profit 101 137 (26.3) 109 (6.8) 476 475 0.2OPM (%) 23.4 25.6 23.7 24.3 25.0

Other operating income 6 1 634.2 7 - 22 -

EBIDTA 107 138 (22.7) 116 (7.9) 498 475 4.9EBITDA margins (%) 24.7 25.8 25.3 25.4 25.0

Interest 30 24 24.1 29 4.2 119 87 37.5

Depreciation 23 19 20.0 22 1.8 89 74 20.0

Other income 25 13 98.4 12 114.7 49 63 (23.0)

Exceptional items - - - - - -

Profit before tax 79 108 (26.3) 77 3.6 338 377 (10.2)% of net sales 18.4 20.1 16.7 17.3 19.9

Tax 26 25 6.8 19 37.9 88 88 (0.1)

% of PBT 33.3 23.0 25.0 26.0 23.4

Profit after tax 53 83 (36.2) 58 (7.9) 250 289 (13.3)Source: Company, Angel Research

Poor 4QFY2013 top-line performance

MILs net sales declined by 19.4% yoy to `432cr, mainly due to decrease in

structural and basic steel volumes (-41.0% yoy to 13,884 tonne) coupled with

decrease in realizations of sponge iron (-18.1% yoy to `19,788/tonne)

Exhibit 2:Quarterly production volume(tonnes) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Sponge iron 186,557 194,171 195,609 190,266 179,126 182,153 204,396

Steel 38,865 39,523 54,296 50,057 42,752 40,016 43,578

Ferro alloy 1,966 2,267 2,587 2,489 2,425 2,414 3,356

Power (mn units) 238 185 225 215 212 117 176



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June 6, 2013 3

Exhibit 3:Quarterly sales volume(tonnes) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Sponge iron 159,906 160,521 157,998 162,726 184,597 157,136 164,490

Steel 17,919 22,542 23,541 25,376 21,093 38,794 13,884Ferro alloy 2,049 2,034 2,147 2,220 1,710 1,928 3,180

Power (mn units) 176 172 180 173 166 82 122


Exhibit 4:Quarterly average realization(`/tonne) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Sponge iron 21,002 21,004 24,159 22,648 21,301 20,209 19,788

Steel 29,040 31,969 33,010 33,599 33,575 32,945 35,247

Ferro alloy 63,397 39,503 49,539 57,219 53,570 51,706 52,674

Power (`/unit) 2.9 3.5 3.6 2.9 3.0 2.6 3.0


EBITDA declines by 22.7% yoy

The companys staff costs as a percentage to sales stood at 6.6% compared to

4.1% in 4QFY2012. This led to the EBITDA declining by 22.7% yoy to `107cr,

while the EBITDA margin contracted by 104bp yoy to 24.7%. Interest and

depreciation expenses grew by 24.1% and 20.0% yoy to `30cr and `23cr,

respectively, on account of capitalization of various projects. Consequently, the net

profit decreased by 36.2% yoy to `53cr.

Exhibit 5:EBITDA margin trend


Exhibit 6:Net profit trend


Steel projects near completion: MIL has successfully commissioned its sinter plantand bar mill whereas the plate mill and blast furnace are in advanced stages of

completion. The benefits from these facilities are likely to accrue from 2HFY2014,

in our view.

119

129

138

136

140

116

107

26.126.7

25.826.125.6

25.3

24.7

24

24

25

25

26

26

27

27

0

20

40

60

80

100

120

140

160

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

(%)

(`c

r)

EBITDA (LHS) EBITDA margin (RHS)

77 7683

6971

58

53

0

2

4

6

8

10

12

14

16

18

0

10

20

30

40

50

60

70

80

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

(%)

(`c

r)

Net Profit (LHS) Net margin (RHS)


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June 6, 2013 4

Investment rationale Steel expansion of 1.5mn tonne: MIL is setting up a 1.5mn steel plant through

the BF-EAF route. The total capex for the project is pegged at `3,600cr.

Various plants including sinter plant, oxygen furnace, steel melting shop and

plate mill are expected to begin progressive commissioning in mid-FY2014.

However, meaningful benefits of these facilities would be witnessed only from

FY2015.

Significant value unlocking lies ahead in Monnet Power: MIL is setting up a1,050MW (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 has 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 commence commercial operations during 4QFY2014.With captive coal blocks backing this project, we expect robust profitability

from the power business. MIL also aims to raise its capacity further by

660MW. However, the company is yet to achieve financial closure for the

same.

Indonesian coal mine could provide further upsides: MIL had acquired twocoal assets in Indonesia during CY2011, which have potential reserves of

65mn tonne. MIL is currently in the process of developing this mine.


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June 6, 2013 5

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 atarget price of `193, valuing the steel business at 4.0x FY2015E EV/EBITDA andinvestment in Monnet Power at 0.8x P/BV.Exhibit 7:SOTP valuationSteel business 4.0x FY2015E EV/EBITDA 78

Stake in Monnet Power 0.8xP/BV 115

Target price (`) 193Source: Company, Angel Research


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Exhibit 8:EV/EBITDA band

Source: Bloomberg, Angel Research

Exhibit 9:P/E band


Exhibit 10:P/BV band


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

Jan-1

3

Apr-13

(`

cr)

2x 5x 8x 11x 14x

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

Jan-1

3

Apr-13

(`)

5x 10x 15x 20x

0

100

200

300

400

500

600

700

800900

1,000

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

Jan-1

3

Apr-13

(`)

0.5x 1.0x 1.5x 2.0x


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June 6, 2013 7

Exhibit 11:Recommendation summaryCompanies CMP Target Price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15ESAIL 57 53 Reduce 23,585 (7) 10.9 8.0 0.6 0.5 7.1 5.1 5.2 6.8 5.2 7.7Monnet 144 193 Buy 916 34 4.3 3.3 0.3 0.3 6.6 4.7 8.3 9.9 5.8 7.7Tata Steel 295 378 Buy 28,675 28 9.5 6.2 0.9 0.8 6.0 4.9 9.6 13.4 9.1 11.2

JSW Steel 736 - Neutral 16,428 - 10.2 8.9 0.9 0.8 4.4 3.9 9.0 9.6 10.1 10.4

BSL 464 - Neutral 10,513 - 9.4 7.0 1.0 0.9 7.7 5.7 11.3 13.5 8.4 10.7


Company descriptionIncorporated in 1990, MIL principally manufactures sponge iron (capacity - 1.0mn

tonne), ingots (capacity - 0.3mn tonne), structural steel (capacity - 0.2mn tonne)

and ferro alloys (capacity - 58ktpa). MIL has a captive coal mine (reserves - 90mntonne; production - 1.2mn tonne) for production of sponge iron. The companys

plants are located in Raipur and Raigarh in Chhattisgarh. It has been allocated

several coal blocks such as Gare Palma IV/5, Utkal B2, Urtan North, Rajgamar

and Mandakini which are under various stages of clearances.


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June 6, 2013 8

Profit & loss statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 1,481 1,573 1,897 1,957 2,326 2,709Other operating income - - - 22 26 29Total operating income 1,481 1,573 1,897 1,980 2,352 2,738% chg (4.4) 6.2 20.6 4.3 18.8 16.4

Total expenditure 1,017 1,136 1,423 1,482 1,855 2,112Net raw materials 735 889 1,142 1,174 1,328 1,494

Other mfg costs 146 0 0 0 186 217

Personnel 73 75 95 108 131 157

Other 62 172 186 199 209 244

EBITDA 464 437 475 498 497 626% chg 23.8 (5.8) 8.6 4.9 (0.2) 26.1

(% of Net sales) 31.3 27.8 25.0 25.4 21.4 23.1

Depreciation 72 74 74 89 114 136

EBIT 392 363 401 409 382 490% chg 26.8 (7.4) 10.3 2.1 (6.6) 28.2

(% of Net sales) 26.5 23.1 21.1 20.9 16.4 18.1

Interest charges 74 31 87 119 151 181

Other income 32 29 63 49 61 67

(% of PBT) 9.1 8.1 16.7 14.4 20.8 17.9

Share in profit of asso. - - - -

Recurring PBT 350 362 377 338 292 377% chg 22.1 3.4 4.3 (10.2) (13.8) 29.3

Extra. Inc/(Expense) 18 - - - - -

PBT (reported) 331 362 377 338 292 377Tax 60 80 88 88 68 88

(% of PBT) 18.2 22.2 23.4 26.0 23.4 23.4

PAT (reported) 269 281 289 250 223 289Add: Earnings of asso. - - - - - -

Less: Minority interest - - - - - -

Extra. Expense/(Inc.) - - - - - -

PAT after MI (reported) 269 281 289 250 223 289ADJ. PAT 288 281 289 250 223 289% chg 24.1 (2.2) 2.7 (13.3) (10.8) 29.3(% of Net sales) 19.4 17.9 15.2 12.8 9.6 10.7

Basic EPS (`) 56.1 47.3 44.9 38.9 34.7 44.9Fully Diluted EPS ( ) 44.7 43.7 44.9 37.4 33.3 43.1% chg (1.7) (2.2) 2.7 (16.8) (10.8) 29.3


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June 6, 2013 9

Balance sheet (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity share capital 54 64 64 64 64 64Reserves & surplus 1,592 2,026 2,296 2,528 2,728 2,991

Shareholders funds 1,646 2,090 2,360 2,592 2,793 3,055Share warrants 27 - - - - -

Minority interest - - - - - -

Total loans 1,495 2,606 3,834 4,034 3,534 3,034Deferred tax liability 120 141 150 150 150 150Long term prov. - 3 6 6 6 6

Total liabilities 3,288 4,841 6,351 6,783 6,484 6,246APPLICATION OF FUNDSGross block 1,439 1,477 1,836 2,836 3,386 4,136

Less: Acc. depreciation 311 383 457 546 661 797

Net Block 1,128 1,094 1,379 2,290 2,725 3,339Capital work-in-progress 721 1,065 2,022 1,722 1,242 462

Goodwill - - - - - -

Investments 545 550 591 591 591 591Loans and advances - 471 443 443 443 443

Other non-current assets - 1 80 80 80 80

Current assets 1,143 1,996 2,394 2,282 2,080 2,032Cash 205 687 873 843 588 442

Loans & advances 590 757 772 772 772 772

Other 348 550 741 659 713 810

Current liabilities 268 337 558 625 678 701

Net current assets 875 1,659 1,836 1,657 1,402 1,331Mis. exp. not written off 18 0 0 0 0 0

Total assets 3,288 4,841 6,351 6,783 6,484 6,246


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June 6, 2013 10

Cash flow statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 331 362 377 338 292 377Depreciation 72 74 74 89 114 136

Change in working capital 78 (348) (67) 149 (1) (74)

Less: Other income 61 (27) 29 - - -

Direct taxes paid 64 86 75 88 68 88

Cash flow from operations 478 (25) 338 489 337 351(Inc.)/ Dec. in fixed assets (73) (39) (358) (1,000) (550) (750)

(Inc.)/ Dec. in investments (412) (792) (956) 300 480 780

(Inc.)/ Dec. in loans and adv. (330) (5) (41) - - -

Other income 15 22 56 - - -

Cash flow from investing (799) (814) (1,300) (700) (70) 30Issue of equity 151 176 (0.0) - - -

Inc./(Dec.) in loans 216 1,177 1,228 200 (500) (500)

Dividend paid 28 0 0 19 23 26

Others 58 31 86 - - -

Cash flow from financing 281 1,322 1,142 181 (523) (526)Inc./(Dec.) in cash (40) 483 181 (30) (256) (146)

Opening cash bal. 246 205 688 844 814 588Closing cash bal. 205 688 844 814 588 442


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June 6, 2013 11

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation ratio (x)P/E (on FDEPS) 3.2 3.3 3.2 3.9 4.3 3.3P/CEPS 2.2 2.6 2.6 2.7 2.7 2.2

P/BV 0.5 0.4 0.4 0.4 0.3 0.3

Dividend yield (%) 3.5 3.5 3.5 1.7 2.1 2.4

EV/Sales 1.0 1.5 1.7 1.8 1.4 1.1

EV/EBITDA 3.3 5.3 6.9 7.1 6.6 4.7

EV/Total assets 0.5 0.5 0.5 0.5 0.5 0.5

Per share data (`)EPS (Basic) 56.1 47.3 44.9 38.9 34.7 44.9

EPS (fully diluted) 44.7 43.7 44.9 37.4 33.3 43.1

Cash EPS 65.9 55.2 56.4 52.7 52.5 66.0

DPS 5.0 5.0 5.0 2.5 3.0 3.5

Book value 307.1 324.8 366.8 402.8 434.0 474.8

DuPont analysisEBIT margin 26.5 23.1 21.1 20.9 16.4 18.1

Tax retention ratio (%) 81.8 77.8 76.6 74.0 76.6 76.6

Asset turnover (x) 0.5 0.4 0.4 0.3 0.4 0.5

RoIC (Post-tax) 11.5 7.8 6.4 5.4 5.0 6.5

Cost of debt (post tax) 4.3 1.2 2.1 2.2 3.1 4.2

Leverage (x) 0.4 0.7 1.0 1.0 0.8 0.7

Operating RoE 14.8 12.2 10.7 8.5 6.6 8.0

Returns (%)RoCE (Pre-tax) 13.1 8.9 7.2 6.2 5.8 7.7

Angel RoIC (pre-tax) 17.3 13.3 12.2 10.7 8.6 9.8

RoE 18.2 14.9 13.0 10.1 8.3 9.9

Turnover ratios (x)Asset turnover (gross block) 1.1 1.1 1.1 0.8 0.8 0.7

Inventory (days) 103 113 139 150 140 140

Receivables (days) 29 37 35 33 32 32

Payables (days) 61 50 29 40 50 50

WC cycle (days) 174 191 186 139 83 77

Solvency ratios (x)Net debt to equity 0.4 0.7 1.0 1.0 0.8 0.7

Net debt to EBITDA 1.6 3.1 5.0 5.2 4.7 3.2

Interest coverage 5.3 11.7 4.6 3.4 2.5 2.7


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June 6 2013 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Monnet Ispat

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

Documents

Monnet Ispat 4Q FY 2013