Dear All,
Forwarding you the Result Update on Bhushan Steel for 4QFY2011 with a Neutral recommendation.
Strong top-line growth: For 4QFY2011, BSL reported net sales growth of 22.2% yoy and 1.2% qoq to `1,966cr on account of a) higher sales volumes, which grew by 8.3% yoy but declined by 9.0% qoq to 425kt and b) an increase in blended realisations by 10.3% yoy and 7.1% qoq to `48,284/tonne. Flat product sales volume increased by 14.5% yoy but declined by 8.8% qoq to 335kt, while long product sales volume fell by 10.8% yoy and 9.8% qoq to 90kt. In 4QFY2011, the 1.9mn-tonne hot strip mill produced 56kt of hot rolled (HR) coils.
Strong profitability growth: During 4QFY2011, BSL’s EBITDA increased by 43.7% yoy and 12.1% qoq to `602cr. This was mainly due to captive consumption of HR coils, which led to raw-material cost (as a percentage of net sales) declining to 49.8% from 60.8% in 4QFY2010. Hence, EBITDA/tonne increased to US$315 in 4QFY2011, compared to US$237 in 4QFY2010 and US$256 in 3QFY2011. Interest expenses increased by 140.8% yoy and 30.3% qoq to `133cr. Thus, net profit grew by 19.5% yoy and 2.7% qoq to `288cr.
Outlook and valuation: At the CMP, the stock is trading at 9.4x FY2012E and 8.2x FY2013E EV/EBITDA, a significant premium over its peers. Although we expect sales volume growth of 24.8% over FY2011–15E, we believe it is too early to play the volume growth story of BSL as strong volume growth is expected only post FY2013. Further, although BSL uses a combination of BF-EAF technology to produce steel, rising prices of iron ore and coal will affect its margins. Moreover, BSL’s debt-equity ratio remains high. Hence, we downgrade the stock to Neutral from Accumulate.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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