Sarda Energy 4Q FY 2013

4QFY2013 Result Update | Steel
May 29, 2013
Sarda Energy and Minerals

Performance highlights
Quarterly Performance (Standalone)
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Adj. net profit
Source: Company, Angel Research
BUY
CMP Target Price
Investment Period
`107 `128
12 months
4QFY13 315 71 22.4 50
4QFY12 298 73 24.7 37
% chg (yoy) 5.8 (3.9) (227)bp 34.0
3QFY13 370 71 19.3 27
% chg (qoq) (14.8) (1.2) 309bp 84.8
Stock Info Sector Market Cap (` cr) Net Debt (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Steel 383 512 1.2 156/90 21,140 10 20,148 6,104 SAEM.BO SEML@IN
For 4QFY2013, Sarda Energy (SEML) reported a net sales sales growth of 5.8% yoy and a PAT growth of 34.0% yoy due to lower interest costs. We maintain our Buy rating on the stock. Revenue growth driven by higher steel sales: During 4QFY2013, SEMLs net sales grew by 5.8% yoy to `315cr driven by healthy performance from steel business (+9.0% yoy to `219cr). Ferro alloy sales volumes were down by 14.1% yoy to 15,322 tonne but the realizations improved by 11.9% yoy to `58,380/tonne. However, billets sales volume increased by 7.9% yoy to 3,992 tonne; pellet sales also increased significantly by 467.2% yoy to 49,685 tonne. EBITDA decline on higher staff costs: Despite a 5.8% yoy growth in top-line, the EBITDA declined by 3.9% yoy due to higher staff costs and other expenditure. The EBITDA margin fell by 227bp yoy to 22.4%. The companys interest costs declined by 77.4% yoy to `8cr and it got a tax benefit of `1cr which led to the net profit rising by 34.0% yoy to `50cr. Outlook and valuation: We believe that SEML is well poised to benefit from a) backward integration into coal and iron ore, b) commercial production of pellets and c) increased power and ferro alloy production. Moreover, we expect utilization levels to improve beginning 2HFY2014, thereby leading to higher sales volumes, mianly during FY2015. We recommend Buy on the stock with a target price of `128, valuing the stock at 2.5x FY2015E EV/EBITDA.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 66.5 7.2 6.3 20.0
Abs. (%) Sensex SEML
3m 6.1 3.7
1yr 22.3
3yr 19.1
(19.4) (57.9)
Key financials (Standalone)

Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
FY2012 1,089 24.5 114 165.2 31.9 16.4 3.4 0.5 15.2 8.1 0.8 4.6
FY2013E 1,373 26.0 125 8.9 34.7 19.8 3.1 0.4 14.4 12.8 0.6 3.2
FY2014E 1,418 3.3 123 (1.0) 34.4 20.3 3.1 0.4 12.6 12.2 0.6 2.9
FY2015E 1,491 5.2 145 17.4 40.4 21.6 2.7 0.3 13.2 12.7 0.5 2.3
Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 E-mail: Bhaveshu.chauhan@angelbroking.com
Vinay Rachh
Tel: 022- 39357600 Ext: 6841 Vinay.rachh@angelbroking.com
Please refer to important disclosures at the end of this report
Sarda Energy | 4QFY2013 Result Update
Exhibit 1: 4QFY2013 Performance (Standalone)

(` cr) Net sales Raw material % of net sales Staff cost % of net sales Other expenditure % of net sales Total expenditure % of net sales Operating profit OPM (%) EBIDTA EBITDA margins (%) Interest Depreciation Other income Exceptional items Profit before tax % of net sales Tax % of PBT Profit after tax Adj.Profit after tax % of net sales
4QFY13 315 164 52.0 14 4.4 69 21.8 247 78.3 69 21.7 71 22.4 8 16 2 49 15.4 (1) 50 50 15.8
4QFY12 298 164 55.1 11 3.9 53 17.9 229 76.8 69 23.2 73 24.7 34 17 39 61 20.6 24 39.5 37 37 12.5
yoy % 5.8 (0.0) 21.0 29.5 7.9 (1.0) (3.9) (77.4) (4.6) (95.5) (20.9) (105.0) 34.0 34.0
3QFY13 370 220 59.5 12 3.3 69 18.5 301 81.3 69 18.7 71 19.3 18 16 4 40 10.9 13 33.3 27 27 7.3
qoq % (14.8) (25.6) 14.5 0.4 (18.1) (0.8) (1.2) (57.7) (1.7) (50.9) 20.1 (109.0) 84.8 84.8
FY2013 1,384 799 57.7 50 3.6 263 19.0 1,112 80.3 261 18.9 272 19.7 63 64 15 160 11.6 35 22.2 125 125 9.0
FY2012 1,100 642 58.4 41 3.7 239 21.7 922 83.8 167 15.2 178 16.2 70 63 59 104 9.5 (10) (9.9) 114 114 10.4
yoy % 25.8 24.4 21.4 10.2 20.6 56.0 52.6 (10.2) 1.3 (74.5) 53.7 (443.3) 8.9 8.9
Exhibit 2: Quarterly production volume

(tonnes) Sponge iron Billets+ ingots Ferro alloys Power (mn units) Pellet Wire rods 4QFY11 57,995 28,133 14,580 148 54,464 23,355 1QFY12 61,914 23,425 13,876 140 56,144 9,979 2QFY12 56,886 24,999 15,878 132 71,497 21,186 3QFY12 60,238 16,433 17,798 155 126,899 22,254 4QFY12 66,382 29,812 16,819 149 93,062 32,297 1QFY13 68,811 30,093 16,035 145 34,081 29,148 2QFY13 72,667 24,243 17,068 143 126,973 27,587 3QFY13 66,861 29,184 12,311 128 146,663 29,746 4QFY13 60,263 28,779 17,481 149 127,581 29,016
May 29, 2013
Exhibit 3: Quarterly sales volume

(tonnes) Sponge Iron Billets+ingots Ferro alloys Power (mn units) Wire rods Pellet 4QFY11 30,579 5,611 16,016 42 19,037 3,705 1QFY12 39,356 9,716 14,622 40 12,237 15,671 2QFY12 36,552 9,798 16,438 20 15,056 1,381 3QFY12 35,780 2,066 16,197 42 21,907 20,131 4QFY12 36,996 3,701 17,837 25 25,323 8,759 1QFY13 44,331 6,619 17,928 28 23,717 3,131 2QFY13 3QFY13 4QFY13 44,331 4,256 17,248 21 19,168 55,379 38,082 6,522 14,014 22 25,261 79,144 30,947 3,992 15,322 27 23,254 49,685
Exhibit 4: Quarterly segment-wise sales performance

(` cr) Steel Ferro Alloys Others Less: Intersegment Net sales Source: Company, Angel Research 4QFY11 139 92 15 (2) 245 1QFY12 162 79 14 (1) 254 2QFY12 157 89 7 (1) 251 3QFY12 180 90 16 1 287 4QFY12 200 93 10 2 305 1QFY13 208 128 10 (5) 341 2QFY13 236 110 7 (1) 353 3QFY13 4QFY13 275 90 8 (1) 372 219 89 10 (1) 317
Exhibit 5: Quarterly segment-wise EBIT performance

(` cr) Steel Ferro Alloys EBIT 4QFY11 18 6 24 1QFY12 22 7 29 2QFY12 24 10 34 3QFY12 29 5 34 4QFY12 53 9 61 1QFY13 27 33 60 2QFY13 36 19 54 3QFY13 55 11 66 4QFY13 48 14 62
Revenue growth driven by higher steel sales

During 4QFY2013, SEMLs net sales grew by 5.8% yoy to `315cr driven by healthy performance from steel business (+9.0% yoy to `219cr). Ferro alloy sales volumes were down by 14.1% yoy to 15,322 tonne but the realizations improved by 11.9% yoy to `58,380/tonne. However, billets sales volume increased by 7.9% yoy to 3,992 tonne; pellet sales also increased significantly by 467.2% yoy to 49,685 tonne.
May 29, 2013
Exhibit 6: Quarterly net sales trend

400
350
300 250 254 251
337
285 298
351
370
315
45 40 35 30 25
(` cr)
150
20 15
10 5 0
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
100 50
0
Net sales (LHS)

yoy change (RHS)
Mixed operating performance in 4QFY2013

Despite a 5.8% yoy growth in top-line, the EBITDA declined by 3.9% yoy due to higher staff costs and other expenditure. The EBITDA margin fell by 227bp yoy to 22.4%. The companys interest costs declined by 77.4% yoy to `8cr and it got a tax benefit of `1cr which led to the net profit rising by 34.0% yoy to `50cr.
Exhibit 7: Quarterly EBITDA trend

80 73 65 58 72
71
70
60
71
30
25
20
(%)
50
(` cr)
40
37
35
15
30
20
10
5 0
10
0
1QFY12
2QFY12
3QFY12
1QFY13
2QFY13
EBITDA (LHS)
EBITDA margin (RHS)
May 29, 2013
4QFY13
4QFY12
3QFY13
(%)
200
Exhibit 8: Adjusted net profit trend

60 50 37 23 18 16 14 12 10 8 6 4 2 0
50
40
(` cr)
28 20
20
10 0
14
1QFY12
3QFY12
4QFY12
2QFY13
3QFY13
Adj. Net profit(LHS)

Adj. Net margin (RHS)
Investment rationale
Restart of captive iron ore mine to lower costs: In the recent past, SEML has not been able to procure iron ore from its captive mine at Rajnandgaon on account of Naxal activity in the region. Although there is lack of clarity on the timeline for the re-commencement of this mine, we believe commencement of production from the mine should result in significant savings. Power capacity to increase: SEML plans to set up a greenfield power plant of 350MW at Raigarh in two phases. The company has already acquired over 250 acres for the same. Although the public hearing is already complete, the consent to establish it is pending yet. We have not factored the financial estimates from this power plant in our forecast model as there are a few regulatory hurdles to be cleared.
May 29, 2013
4QFY13
2QFY12
1QFY13
(%)
30
28
27
Outlook and valuation

We believe that SEML is well poised to benefit from a) backward integration into coal and iron ore, b) commercial production of pellets and c) increased power and ferro alloy production. Moreover, we expect utilization levels to improve beginning 2HFY2014, thereby leading to higher sales volumes, mianly during FY2015. We recommend Buy on the stock with a target price of `128, valuing the stock at 2.5x FY2015E EV/EBITDA.
Exhibit 9: EV/EBITDA
7,000 6,000
5,000
(` cr)
4,000 3,000 2,000
1,000 0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
4.0x
Source: Bloomberg, Angel Research
8.0x
12.0x
16.0x
20.0x
Exhibit 10: P/E band

700
600 500
(` )
400
300
200 100
0
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
0.5x
1.0x
1.5x
2.0x
May 29, 2013
Exhibit 11: P/BV band

1,000 900 800 700 600 500 400 300 200 100 0
Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
(` )
3x
8x
13x
18x
Exhibit 12: Recommendation summary

Companies Godawari Prakash CMP Target price (`) 85 36 107 (`) 118 45 128 Buy Buy Buy Reco. Mcap Upside (` cr) 269 484 465 39 24 20 P/E (x) 2.5 3.7 3.1 1.9 3.5 2.7 P/BV (x) 0.3 0.2 0.4 0.2 0.2 0.3 EV/EBITDA (x) 3.8 3.6 2.9 2.9 3.3 2.3 RoE (%) 11.2 6.5 12.6 13.1 6.5 13.2 RoCE (%) 11.6 6.4 12.2 12.5 6.5 12.7 (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E
SEML
Company Background
SEML is a Raipur-based steel and ferro alloy manufacturer. The products manufactured by the company include sponge iron, steel billets, steel ingots, wire rods, ferro alloys, iron ore pellets etc. The company has a captive thermal coal mine for manufacturing sponge iron. It also has several (non-operational currently) iron ore and coal mines which are under various stages of clearances.
May 29, 2013
Profit & Loss Statement (Standalone)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Extraordinary Expense/(Inc.) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) FY2010 FY2011 FY2012 556 (33) 523 523 (44.9) 446 369 58 19 77 (65.6) 14.7 39 38 (80.6) 7.3 13 7 22.4 32 (83.3) 45 77 14 18.1 63 63 18 (89.0) 3.5 5.4 5.4 946 (71) 875 875 67.4 758 579 148 31 117 52.7 13.4 58 60 56.9 6.8 15 20 31.0 64 97.6 6.5 71 21 29.8 50 50 43 133.3 4.9 12.0 12.0 1,186 (96) 1,089 10.8 1,100 25.7 922 642 239 41 178 52.2 16.4 63 115 93.3 10.6 70 59 57.0 104 62.1 104 (10) (9.9) 114 114 114 165.2 10.5 31.9 31.9 FY2013 FY2014E FY2015E 1,513 (140) 1,373 10.9 1,384 25.8 1,112 799 263 50 272 52.6 19.8 64 208 80.8 15.2 63 15 9.4 160 53.7 160 35 22.2 125 125 125 8.9 9.1 34.7 34.7 1,533 (115) 1,418 1,418 2.5 1,131 811 271 48 288 5.7 20.3 69 219 5.2 15.4 72 17 10.6 1.0 164 2.7 164 41 25.0 123 123 123 (1.0) 8.7 34.4 34.4 1,612 (121) 1,491 1,491 5.2 1,170 834 285 51 322 12.0 21.6 75 247 12.9 16.6 74 20 10.4 1.0 193 17.4 193 48 25.0 145 145 145 17.4 9.7 40.4 40.4
May 29, 2013
Balance Sheet (Standalone)

Y/E March (` cr.) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Share Warrants Minority Interest Total Loans Other Long Term liabilities Long Term Provisions Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Other non-current assets Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 612 185 427 373 66 282 25 91 166 96 186 1,053 926 240 686 126 152 111 1 406 2 99 305 161 244 1,320 1,030 299 732 111 213 188 1 456 1 159 296 179 277 1,523 1,170 363 808 86 213 188 1 584 38 159 361 155 428 1,725 1,310 431 879 76 213 188 1 659 101 159 373 156 503 1,860 1,400 506 894 66 213 188 1 813 236 159 392 158 654 2,017 34 531 565 460 29 1,053 36 658 694 582 1 8 36 1,320 36 772 808 655 2 8 50 1,523 36 884 920 745 2 8 50 1,725 36 995 1,031 770 2 8 50 1,860 36 1,127 1,163 795 2 8 50 2,017 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E
May 29, 2013
Cash Flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments (Inc.)/Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 72 (55) (36) 12 14 (61) 9 15 25 (35) (191) 92 (9) 12 29 227 (23) 25 2 74.1 (77) (81) 12 57 (151) (1) 2 1 (115) 90 13 77 37 1 38 (130) 25 13 12 63 38 101 (80) 25 13 12 134 101 236 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 77 39 33 (7.7) 16 126 (133) 6 71 58 (183) 5.8 10 (58) (80) (76) 104 63 62 13.6 16 227 (95) (56.2) 160 64 (114) 35 75 (115) 164 69 (11) 41 181 (130) 193 75 (17) 48 202 (80) -
May 29, 2013
10
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.7 4.8 3.0 0.6 3.7 3.9 0.5 2.5 1.6 0.5 1.8 3.3 0.4 1.6 3.0 0.3 1.1 3.3 0.9 88 11 22 147 1.1 86 12 28 84 1.1 81 14 30 87 1.2 81 14 30 89 1.1 81 14 30 102 1.1 81 14 30 100 3.6 3.9 11.7 5.0 5.6 7.9 8.1 9.3 15.2 12.8 15.0 14.4 12.2 14.5 12.6 12.7 15.9 13.2 7.3 81.9 0.5 3.2 2.1 0.7 4.0 6.8 70.2 0.8 3.9 2.0 0.6 5.1 10.5 109.9 0.9 10.2 12.5 0.5 9.0 15.0 77.8 1.0 11.6 7.0 0.5 14.1 15.4 75.0 0.9 10.9 7.1 0.4 12.5 16.6 75.0 1.0 11.9 7.1 0.3 13.3 5.4 5.4 16.8 3.0 165.8 12.0 12.0 28.1 3.0 193.5 31.9 31.9 49.6 3.0 225.4 34.7 34.7 52.6 3.0 256.7 34.4 34.4 53.5 3.0 287.5 40.4 40.4 61.2 3.0 324.4 19.7 6.4 0.6 2.8 1.4 9.5 0.7 8.9 3.8 0.6 2.8 0.9 6.9 0.6 3.4 2.2 0.5 2.8 0.8 4.6 0.5 3.1 2.0 0.4 2.8 0.6 3.2 0.5 3.1 2.0 0.4 2.8 0.6 2.9 0.5 2.7 1.7 0.3 2.8 0.5 2.3 0.4 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E
May 29, 2013
11
Research Team Tel: 022 - 39357800
E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
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
Sarda Energy No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%) Reduce (-5% to -15%)
Accumulate (5% to 15%) Sell (< -15%)
Neutral (-5 to 5%)
May 29, 2013
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Sarda Energy 4Q FY 2013

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4QFY2013 Result Update | Steel

May 29, 2013

Sarda Energy and Minerals

4QFY13 315 71 22.4 50

4QFY12 298 73 24.7 37

% chg (yoy) 5.8 (3.9) (227)bp 34.0

3QFY13 370 71 19.3 27

% chg (qoq) (14.8) (1.2) 309bp 84.8

Abs. (%) Sensex SEML

Key financials (Standalone)

Please refer to important disclosures at the end of this report