Dear All,
Forwarding you the Result Update on Sarda Energy and Minerals for 4QFY2011 with a Buy recommendation and a Target Price of `253 (12 months).
For 4QFY2011, Sarda Energy and Minerals (SEML) reported net sales growth of 40.5% yoy to `245cr. However, adjusted net profit declined by 45.2% yoy to `9cr due to higher costs. We remain positive on SEML and maintain Buy on the stock.
Margins affected due to higher costs: SEML’s net sales grew by 40.5% yoy to `245cr due to higher realisation in the steel segment coupled with higher sales volume in the billets and ingots, ferro alloys, wire rods and power segments. Average steel realisation also grew by 132.2% yoy to `38,458/tonne. SEML sold 3,705 tonnes of pellets in 4QFY2011. However, EBITDA margin fell substantially by 711bp yoy to 12.8% due to higher other expenses, which, as a percentage of net sales, increased to 16.7% (9.4% in 4QFY2010). Thus, EBITDA fell by 9.6% yoy to `31cr. EBIT of the ferro alloys segment declined by 70.9% yoy to `6cr on account of lower realisation coupled with higher prices of key inputs. Depreciation increased by 42.6% yoy to `17cr and tax rate came in higher at 28.9% vs. 21.2% in 4QFY2010. Consequently, adjusted net profit fell by 45.2% yoy to `9cr.
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 resulting in higher sales volumes. A key catalyst for the stock would be re-starting of its iron ore operations at Rajnandgaon. We recommend Buy on the stock with a target price of `253, valuing the stock at 5.5x FY2013E EV/EBITDA.
Kindly click on the following link to view the Report.
Sarda Energy and Minerals - RU4QFY2011
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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