Sarda Energy & Minerals Ltd | Management Meet Note

13th January 2010

Not Rated We met the management of Sarda Energy & Minerals Ltd.
Price (INR) 297 SEML is into production of Steel and Ferro Alloys. The company
Target (INR) NA
Return (%) NA
has acquired Coal, Iron Ore and Manganese ore mines which
Beta (Sensex) 1.79 are at various stages of getting operational. The company also
has plans for significant capacity addition in Thermal and Hydro
power. Once the mines get operational they will significantly
contribute to improvement in EBITDA margins. The power pro-
Market Data jects and additional capacities for Wire Rod, Ferro Alloy & Steel
Mar Cap (INR Mn) 9,815
will drive revenue growth in the longer term.
Enterprise Value (INR Mn) 15,967
Total Shares (Mn) 34
The conversion of reconnaissance permit / prospecting licenses
Avg Qtr Dly Vol (000's) 329
into mining lease and easing of naxal activities will play key
role in company’s revenue and profitability outlook going
ahead. The stock is currently trading at 9.7 x Adj Cons EPS of
Shareholding INR 30 for FY10. We do not have a rating on the stock.
Promoter 70.1%
DII 8.0%  Wire Rod to boost sales, improve operating margin and
FII 6.4% profits
Non Institution 15.6%
 Ferro Alloys: Increasing demand, better realizations and ca-
pacity expansion to drive earnings

 Coal, Iron Ore & Manganese Ore resources to help in back-

Stock Code
NSE SARDAEN ward integration
BSE 504614
Bloomberg SEML IN  Thermal and Hydro power projects, to scale up the business
Reuters SAEM.BO in the longer term
Source : MLR, Company

Standalone Quarterly Financials (INR Mn) Sep-10 Sep-09 Var% Jun-10 Jun-09 Var%
Net Sales 2,002.1 1,020.0 96.3 2,167.2 930.8 132.8
Other operating income 0.0 0.0 0.0 0.0
Net Sales & Other Operating Income 2,002.1 1,020.0 96.3 2,167.2 930.8 132.8
Total Expenditure 1,840.7 958.4 92.1 1,806.8 884.4 104.3
PBIDT (Excl OI) 161.3 61.6 162.1 360.5 46.4 677.0
Other Income 278.5 21.1 1,219.5 8.4 142.0 -94.1
Operating Profit 439.9 82.7 432.1 368.8 188.4 95.8
Interest 56.6 25.3 123.7 26.9 16.9 58.9
Exceptional Items 0.0 60.2 -100.0 0.0 -14.0 100.0
PBDT 383.3 117.6 226.0 341.9 157.5 117.2
Depreciation 136.4 106.3 28.4 135.7 81.2 67.2
PBT 246.9 11.3 2,077.3 206.2 76.3 170.4
Tax 70.7 -4.2 1,799.8 68.5 16.3 321.5
Profit After Tax 176.2 15.5 1,036.8 137.7 60.0 129.4
Extraordinary Items 0.0 0.0
Net Profit (after Extraordinary Items) 176.2 15.5 1,036.8 137.7 60.0 129.4
EPS 5.2 0.5 1,026.1 4.0 1.8 129.6
PBIDTM% (Excl OI) 7.4 5.6 31.6 15.6 5.0 212.6
PATM% 8.1 1.4 470.7 6.0 6.5 -7.7

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Sarda Energy & Minerals Ltd | Management Meet Note
13th January 2010

Status of Projects and Mining Resources

Steel & Product Location Capacity (TPA) Status

Ferro Alloys Pellet Plant Chattisgarh 600,000 Operational
Sponge Iron Chattisgarh 360,000 Operational
Crude Steel Chattisgarh 240,000 Operational
Wire Rod Chattisgarh 180,000 Operational
Ferro Alloys Chattisgarh 82,500 Operational
Ferro Alloys Andhra Pradesh 125,000 Operational by Mar'12
Coal Washery Chattisgarh 960,000 Operational by Apr'11
Integrated Steel Chattisgarh 1,000,000 Land Acquired

Thermal Resource Location Reserves (Mn Tn) Status

Thermal Coal Chattisgarh 100 Operational
Coal
Thermal Coal Chattisgarh 36 Environment Clearance Awaited
Thermal Coal Indonesia (50% Economic Interest) 300 Operational by Dec'11

Iron Ore Resource Location Reserves (Mn Tn) Status

Iron Ore Chattisgarh 20 Operational by Mar'11
Iron Ore Chattisgarh 200 (to be acertained) 4 RP & 1 PL Received

Manganese Resource Location Reserves (Mn Tn) Status

Ore Manganese Ore Goa 6 Environment Clearance Awaited
Manganese Ore Madhya Pradesh 25 (to be acertained) 3 RP & 2 PL Received

Thermal Power Location Capacity (MW) Status

Power Thermal Chattisgarh (Captive) 81.5 Operational
Thermal Andhra Pradesh (Captive) 80 Operational by Mar'12
Thermal Chattisgarh 300 Land Acquired
Thermal Chattisgarh 1320 Land Acquired

Hydro Power Location Capacity (MW) Status

Hydro Uttranchal 4.8 Operational
Power
Hydro Sikkim 96 Operational by FY15
Hydro Chattisgarh 101 Financial Closure Awaited
Source : MLR, Company

Company Background

Sarda Energy & Minerals Ltd is into production of Steel and Ferro Alloys. The com-
pany has acquired Coal, Iron ore and Manganese ore mines in India and Indonesia
for backward integration. It also has a captive thermal power plant and has plans
for additional capacities for thermal and hydro power.

The company is based in Raigarh, Chattisgarh. Mr Kamal Kishore Sarda is the chair-
man & managing director of the company.

Recently SEML has allotted 5% of its equity to Asia Minerals Ltd. AML is a Hong
Kong based company and is specialized in all Manganese related business from
Ores to Alloys, Metals and Chemicals.

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Sarda Energy & Minerals Ltd | Management Meet Note
13th January 2010

Wire Rod to boost sales, improve operating margin and profits

The company has set up a Wire Rod mill with a capacity of

180,000 TPA. The plant has started trial production; however,
commercial production will start only in FY12.

The demand for Wire Rod is likely to increase due to higher in-
vestments in the infrastructure sector. Also, the realization for
Wire Rod is higher than Billets as Wire Rod is a finished product.
The operating margin will also improve as the increase in realiza-
tion is higher than the conversion expense.

The company will also be selling Sponge Iron which will aid reve-
nue growth from Steel division.

Ferro Alloys: Increasing demand, better realizations and capac-

ity expansion to drive earnings

The demand for steel in India, the world’s second fastest grow-
ing economy is increasing at a faster pace than the rest of the
world. The demand for ferro alloys is directly related to the de-
mand for steel and the growth outlook looks bright.

The capacity addition in the ferro alloys space is not happening

at a fast pace and demand is likely to outpace supply resulting in
decrease in exports and better realizations.

The company at present has an installed capacity of 82,500 TPA

and has plans to add 125,000 TPA of fresh capacity in Andhra
Pradesh, the new plant will also be having a captive power plant
of 80 MW. The company expects the plant to be operational by
Mar’12.

Coal, Iron Ore & Manganese Ore resources to help in backward

integration

The company has two coal mines in Chhattisgarh with a total

reserve of 136 Mn Tn. The company has also acquired a coal
mine in Indonesia with approximate reserve of 300 Mn Tn, how-
ever the Indonesian coal mine is not likely to become opera-
tional before Dec’11. The coal mined from the captive resources
would be used for the production of sponge iron and power
plants.

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Sarda Energy & Minerals Ltd | Management Meet Note
13th January 2010

The company is having an Iron Ore mine in Chhattisgarh with a

reserve of 20 Mn Tn and is likely to become operational by
Mar’11. It has received prospecting license for one mine and rec-
ommended prospecting license for four mines in the state of
Chhattisgarh. The five mines are likely to have total Iron Ore re-
serve of 200 Mn Tn.

The company is having a Manganese Ore mine in Goa with a re-

serve of 6 Mn Tn. It has also received reconnaissance permit and
prospecting license for Manganese Ore mines in the state of
Madhya Pradesh. The reserve of these mines is yet to be ascer-
tained.

The company has set up a pellet plant and a coal washery. The
pellet plant has a capacity of 600,000 TPA and started produc-
tion from Q1 FY11. The captive iron ore and pellet plant will re-
sult in a saving of INR 6000/Tn of Steel. It is also setting up a Coal
washery facility with a capacity of 960,000 TPA and the facility is
expected to be operational by Apr’11.

The mining resources combined with the pellet plant and coal
washery would aid in improving the margin.

Thermal and Hydro power projects, to scale up the business in

the longer term

The company at present is having a total power capacity of 81.5

MW, 30 MW is waste heat recovery based power and 51.5 MW
is coal based. The current power capacities are captive, how-
ever, at times when steel prices are subdued the company has
been selling power in the open market. The company is also
planning a 300 MW coal based power plant in Chhattisgarh near
its coal mines. The land for the project has been acquired.

The company is planning two hydro power projects in Sikkim and

Chhattisgarh with capacities of 96 MW and 101 MW respec-
tively. The Sikkim project has been appraised by PFC and civil
contract has been awarded, the project is likely to be opera-
tional by FY15. The work on Chhattisgarh hydro power project is
yet to start and the financial closure is awaited.

A 1320 MW (2*660 MW) in Chattisgarh is also at its initial

stages, the land for the project has been acquired, coal linkage
and water permissions has also been received.

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Sarda Energy & Minerals Ltd | Management Meet Note
13th January 2010

Financials (Consolidated, INR Mn)

Income Statement FY06 FY07 FY08 FY09 FY10

Revenue 2,156.4 3,678.6 6,249.2 9,488.2 5,277.1
Operating Expense 1,956.3 2,980.3 4,544.5 7,673.0 4,494.5
EBITDA 200.1 698.3 1,704.6 1,815.1 782.6
Other Income 42.7 169.9 53.2 88.7 1,237.1
Dep & Amo 66.1 225.7 223.1 281.3 409.3
Interest 31.8 135.0 136.7 34.8 22.5
Tax 24.8 81.9 179.9 263.2 144.1
Minority Interest 0.0 0.0 0.0 0.1 1.6
Net Income 120.2 425.7 1,218.0 1,324.4 1,442.1
Non Recurring Item 0.0 0.0 0.0 -449.2 430.3
Adjusted Net Income 120.2 425.7 1,218.0 1,773.6 1,011.8

Balance Sheet FY06 FY07 FY08 FY09 FY10

Share Capital 130.8 130.8 340.5 340.5 340.5
Reserve 540.9 1,945.8 3,687.4 4,908.1 6,172.7
Total Equity 671.7 2,076.6 4,027.8 5,248.5 6,513.2
Loan Fund 1,034.8 2,087.4 3,238.4 7,438.4 6,220.7
Minority Capital 0.0 0.0 0.0 0.0 258.5
Deferred Tax Liability 131.7 170.8 194.4 283.0 286.5
Total Capital 1,838.3 4,334.8 7,460.6 12,969.9 13,278.8
Fixed Asset 1,227.3 2,901.8 4,678.2 7,143.0 9,063.7
Investment 1.0 218.5 179.9 3,766.8 2,111.6
Cash 10.3 214.5 993.0 366.8 628.0
Inventory 335.9 682.8 1,498.9 996.3 1,520.0
Other Current Asset 349.4 846.7 1,346.0 1,295.2 957.8
Total Current Liabilitiy 85.6 529.5 1,235.4 598.2 1,002.3
Net Current Asset 609.9 1,214.5 2,602.5 2,060.1 2,103.5
Total Asset 1,838.3 4,334.8 7,460.6 12,969.9 13,278.8

Ratio Analysis FY06 FY07 FY08 FY09 FY10

Revenue Growth (%) -5.1 70.6 69.9 51.8 -44.4
EBITDA Margin (%) 9.3 19.0 27.3 19.1 14.8
EBITDA Growth (%) -44.3 248.9 144.1 6.5 -56.9
Adj Net Income Margin (%) 5.6 11.6 19.5 18.7 19.2
Adj Net Income Growth (%) -33.7 254.2 186.1 45.6 -43.0
Asset Turnover (x) 1.3 1.2 1.1 0.9 0.4
Financial Leverage (x) 2.6 2.2 1.9 2.2 2.2
RoE (%) 18.8 31.0 39.9 38.2 17.2
BVPS (INR) 51.4 158.8 118.3 154.2 191.3
P/BV (x) 5.6 1.8 2.4 1.9 1.5
Adj EPS (INR) 9.2 32.5 35.8 52.1 29.7
Adj P/E (x) 31.4 8.9 8.1 5.5 9.7
Source : MLR, Company

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Sarda Energy & Minerals Ltd | Management Meet Note
13th January 2010

Research Analyst
Saurabh singh +91 22 40023026 saurabh.singh@mlrsecurities.com

Head of Research
Aditya Damani +91 22 22630125 aditya.damani@mlrsecurities.com

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6 MLR Investment Research