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Sarda Energy and Minerals
Sarda Energy and Minerals
August 2, 2011
BUY
CMP Target Price `198 `259
12 months
4QFY11 245 31 12.8 9 % chg (qoq) 3.8 16.6 158bp 56.0
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Adj. net profit
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
For 1QFY2012, Sarda Energy and Minerals (SEML) reported net sales growth of 17.2% yoy to `254cr. However, adjusted net profit declined by 48.3% yoy to `14cr due to higher costs. We maintain our Buy rating on the stock. Ferro alloy segment drags SEMLs 1QFY2012 profitability: During 1QFY2012, SEMLs net sales grew by 17.2% yoy to `254cr due to higher realisation in the steel segment coupled with higher sales volume of billets, ingots and power. Blended steel realisation grew by 96.1% yoy to `33,036/tonne on account of improved product mix. EBITDA margin declined substantially by 857bp yoy to 14.4% mainly on account of higher raw-material costs. Thus, EBITDA declined by 26.6% yoy to `37cr. EBIT of the ferro alloys segment declined by 73.0% yoy to `7cr on account of lower realisation coupled with higher prices of key inputs. Interest costs for the quarter increased by 112.6% yoy to `6cr, owing to which adjusted net profit declined by 48.3% yoy to `14cr. Outlook and valuation: We continue to 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, firm sponge iron and billet prices should lead to higher capacity utilisation in FY2012 and FY2013, thereby leading to higher sales volumes. A key catalyst for the stock would be restarting of its iron ore operations at Rajnandgaon. We recommend Buy with a target price of `259, valuing the stock at 5.5x FY2013E EV/EBITDA.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 66.5 7.2 7.0 19.3
3m (4.7)
1yr 0.2
(25.8) (23.9)
FY2010 523 (44.9) 18 (89.0) 5.4 14.7 36.4 1.2 11.7 3.6 2.1 14.4
FY2011E 875 67.4 43 133.3 12.0 13.4 16.4 1.0 7.9 4.9 1.3 9.6
FY2012E 992 13.3 88 103.7 23.3 17.6 8.5 0.9 12.0 8.7 1.1 6.3
FY2013E 1,070 7.9 104 18.5 27.7 20.8 7.1 0.8 12.8 9.5 0.9 4.5
Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 E-mail: Bhaveshu.chauhan@angelbroking.com
1QFY12 254 170 67.0 4 1.4 9 3.6 34 13.6 217 85.6 37 14.4 37 14.4 6 14 2 (3) 16 6.1 5 29.4 14
1QFY11 217 131 60.7 1 0.4 7 3.5 27 12.5 167 77.0 50 23.0 50 23.0 3 14 1 (14) 21 9.5 7 33.2 27
yoy % 17.2 29.4 273.4 23.4 27.6 30.2 (26.6) (26.6) 112.6 6.2 181.0 (24.6) (33.4) (48.3)
FY2011 875 579 66.2 10 1.2 31 3.5 137 15.7 758 86.6 117 13.4 117 13.4 15 58 20 7 71 8.1 22 30.6 43
FY2010 523 369 70.6 4 0.8 19 3.7 53 10.2 446 85.3 77 14.7 77 14.7 13 39 7 45 77 14.8 14 18.1 18
yoy % 67.4 57.1 131.8 58.7 157.4 69.9 52.7 52.7 19.4 48.5 173.2 (8.3) 54.7 133.5
August 2, 2011
August 2, 2011
(` cr)
100 50 0
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
(` cr)
20 10 0
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
EBITDA (LHS)
August 2, 2011
1QFY12
(%)
30
1QFY12
(%)
150
(` cr)
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
Investment rationale
Captive iron ore mine expected to restart soon: 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 iron ore should result in significant savings. Pellet production to lower raw-material costs: SEML started commercial production of its 0.6mn tonne pellet plant in April 2010 and, over the last six months, structural problems have also been successfully resolved. Moreover, domestic prices of iron ore and pellets have risen sharply in the past one year. Hence, we expect significant cost savings for the company on account of captive pellet production. 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 250 acres. Although the public hearing is already complete, the consent to establish 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.
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1QFY12
(%)
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(`)
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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.) 0.5 1.3 12.1 0.9 2.0 42.5 0.8 5.7 3.0 0.6 3.5 3.9 0.5 2.3 5.5 0.3 1.3 6.2 2.0 142 40 69 60 2.3 59 7 3 47 0.9 150 10 40 80 1.3 163 18 40 74 1.3 150 18 40 90 1.2 150 18 40 86 24.8 28.1 39.8 21.4 23.9 26.9 3.6 3.8 11.7 4.9 5.4 7.9 8.7 10.6 12.0 9.5 12.2 12.8 23.4 87.2 1.2 24.5 4.0 0.5 35.7 20.6 82.6 1.2 19.8 0.9 0.9 36.3 7.3 81.9 0.5 3.1 2.1 0.8 3.8 6.8 70.2 0.8 3.8 1.9 0.6 4.9 12.7 70.2 0.8 7.4 2.5 0.5 10.0 13.9 70.2 0.9 8.6 2.5 0.3 10.6 35.6 35.4 42.1 3.0 118.1 49.4 49.0 57.6 3.0 150.8 5.4 5.4 16.8 3.0 165.8 12.0 12.0 28.1 3.0 193.1 24.5 23.3 37.9 3.0 214.1 29.0 27.7 49.8 3.0 239.6 5.6 4.7 1.7 1.5 1.4 5.3 1.2 4.0 3.4 1.3 1.5 1.2 5.0 1.0 36.4 11.7 1.2 1.5 2.1 14.4 1.1 16.4 7.0 1.0 1.5 1.3 9.6 0.8 8.5 5.2 0.9 1.5 1.1 6.3 0.7 7.1 4.0 0.8 1.5 0.9 4.5 0.6 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
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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
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):
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