electrosteel 4q fy 2013
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7/30/2019 Electrosteel 4Q FY 2013
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Please refer to important disclosures at the end of this report 1
Quarterly highlights (Standalone)(` cr) 4QFY13 4QFY12 yoy (%) 3QFY13 qoq (%)Net sales 495 503 (1.5) 473 4.7EBITDA 40 5 717.1 47 (14.0)
% margin 8.1 1.0 715bp 9.9 (177)bp
Adj. net profit 44 6 652.7 33 34.4Source: Company, Angel Research
For 4QFY2013, Electroste el Castings (ECL) reported a strong growth in operating
profit mainly due to decline in costs as a percentage of sales. We maintain ourBuy recommendation on the stock.Lower costs lead to higher profits:ECLs 4QFY2013 net sales declined by 1.5%yoy to `495cr due to lower realizations in our view. ECL reported an EBITDA of
`40cr in 4QFY2013, compared to an EBITDA of `5cr in 4QFY2012, due to lower
raw material costs, Power costs and other expenditure and therefore EBITDA
margins also increased by 715bp. The companys other income rose by 135.8%
yoy to `57cr and depreciation costs declined by 7.5% yoy to `13cr. Therefore, the
company posted a PAT of `44cr compared to a PAT of `6cr in 4QFY2012.
Update on mines: Iron ore mine continues to await stage 2 clearance. Thecompany has ramped up coal production from its coking coal mine to a monthly
run-rate of 35,000 tonnes. The company aims to produce 0.6-0.7mn tonnes of
coking coal in FY2014.
Outlook and valuation:We maintain our positive stance on the companysinitiatives of venturing into steel making through its associate ESL. Further, the
companys backward integration initiatives through the allocation of iron ore
(although not factored in our estimates currently) and coking coal mines are
expected to result in cost savings from FY2014-15. We maintain our Buy view onthe stock with a SOTP target price of `24.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 2,023 2,154 1,976 2,017% chg 8.0 6.5 (8.3) 2.1
Net profit (27) (24) 44 90% chg - - - 106.0
FDEPS (`) (0.8) (0.7) 1.3 2.6OPM (%) 5.2 9.2 11.8 12.7
P/E (x) - - 13.5 6.5
P/BV (x) 0.3 0.3 0.1 0.1
RoE (%) (1.6) (1.4) 2.6 5.2
RoCE (%) 1.5 4.2 4.9 5.3
EV/Sales (x) 0.9 0.9 0.9 0.9
EV/EBITDA (x) 16.8 10.0 7.7 6.9
Source: Company, Angel Research
BUYCMP `17
Target Price `24
Investment Period 12 months
Stock Info
Sector
1,628
Bloomberg Code ELSC@IN
Shareholding Pattern (%)
Promoters 48.6
MF / Banks / Indian Fls 9.9
FII / NRIs / OCBs 5.5Indian Public / Others 36.1
Abs. (%) 3m 1yr 3yr
Sensex 3.8 23.8 18.9
ELSC (23.9) (11.2) 23.8
1
20,213
6,147
ELST.BO
557
0.7
29/15
184,767
Steel
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
Net debt (` cr)
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Bhavesh ChauhanTel: 022- 39357600 Ext: 6821
E-mail: Bhaveshu.chauhan@angelbroking.com
Vinay RachhTel: 022- 39357600 Ext: 6841
vinay.rachh@angelbroking.com
Electrosteel CastingsPerformance Highlights
4QFY2013 Result Update | Steel
May 15, 2013
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Electrosteel Castings | 4QFY2013 Result Update
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Exhibit 1:4QFY2013 performance (Standalone)Y/E March (` cr) 4QFY13 4QFY12 yoy % 3QFY13 qoq % FY2013 FY2012 yoy %Net sales 495 503 (1.5) 473 4.7 2,154 2,023 6.5Raw material 282 294 (4.1) 255 10.6 1,159 1,091 6.2% of net sales 57.0 58.5 53.9 53.8 54.0
Power & Fuel 37 44 (15.0) 38 (1.4) 150 144 4.8
% of net sales 7.5 8.7 8.0 7.0 7.1
Staff cost 37 25 44.8 35 3.6 183 159 14.9
% of net sales 7.4 5.0 7.5 8.5 7.9
Other expenditure 118 162 (26.9) 105 12.8 524 603 (13.1)
% of net sales 23.9 32.2 22.2 24.3 29.8
Total expenditure 474 525 (9.7) 433 9.5 2,016 1,997 0.9
% of net sales 95.8 104.4 91.6 93.6 98.7
Operating profit 21 (22) - 40 (47.5) 138 26 440.6OPM(%) 4.2 (4.4) 8.4 6.4 1.3
Other operating income 19 27 (28.9) 7 179.6 60 79 (24.4)
EBIDTA 40 5 717.1 47 (14.0) 198 105 89.4EBITDA margins (%) 8.1 1.0 9.9 9.2 5.2
Interest 25 25 0.2 27 (5.5) 126 111 13.4
Depreciation 13 14 (7.5) 13 (4.5) 56 57 (1.5)
Other income 57 24 135.8 38 51.7 95 74 28.8
Profit before tax 59 (10) - 44 33.9 112 11 889.4% of net sales 12.0 (2.0) 9.4 5.2 0.6
Tax 15 (16) - 11 32.3 24 (17) (237.4)
% of PBT 24.9 159.5 25.2 20.9 -
Profit after tax 44 6 652.7 33 34.4 (24) (27) (12.3)Source: Company, Angel Research
Strong operating performance due to lower costs
ECLs 4QFY2013 net sales declined by 1.5% yoy to `495cr due to lower
realizations in our view. ECL reported an EBITDA of `40cr in 4QFY2013,
compared to an EBITDA of `5cr in 4QFY2012, due to lower raw material costs,
Power costs and other expenditure and therefore EBITDA margins also increased
by 715bp. The companys other income rose by 135.8% yoy to `57cr and
depreciation costs declined by 7.5% yoy to `13cr. Therefore, the company posted
a PAT of `44cr compared to a PAT of `6cr in 4QFY2012.
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Electrosteel Castings | 4QFY2013 Result Update
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Exhibit 2:Net sales decline by 1.5% yoy in 4QFY2013
Source: Company, Angel Research
Exhibit 3:EBITDA stood at `40cr
Source: Company, Angel Research
Exhibit 4:Net profit stood at `44cr
Source: Company, Angel Research
444
503
428
479 473
495
(2)
(1)
0
1
2
3
45
6
7
380
400
420
440
460
480
500
520
3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
(%)
Net revenue (LHS) % yoy (RHS)
(`
cr)
77
54
45
(1)
511
81
47
40
(2)
02
4
6
8
10
12
14
16
18
(10)
010
20
30
40
50
60
70
80
90
4QFY11 2QFY12 4QFY12 2QFY13 4QFY13
(%)
EBITDA (LHS) EBITDA margin (RHS)
(`
cr)
39
28
19
(11)
6
29
25
33
44
(4)
(2)
0
2
4
6
8
10
(20)
(10)
0
10
20
30
40
50
4QFY11 2QFY12 4QFY12 2QFY13 4QFY13
(%)
Adj. net profit Adj. net profit margin (RHS)
(`
cr)
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Electrosteel Castings | 4QFY2013 Result Update
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Investment arguments
Backward integration initiatives to aid margin growth
ECL is on track to have an integrated business model in place through a)backward integration initiatives led by the allocation of mines and
b) focus on beefing up its logistics infrastructure to further reduce costs.
The company was granted mining lease for the Parbatpur coking coal mine in
Jharkhand in January 2008. The mine is estimated to have blast furnace grade
reserves of 231mn tonne. The company expects to commence meaningful
production from FY2014. For its iron ore requirements, ECL had received forest
stage-I clearance for its iron ore mines located at Kodolibad, West Singhbhum,
Jharkhand, from Ministry of Forests and Environment (MOEF) during February
2012. The mine has reserves of 91mn tonne with 64% Fe content. ECL expects to
commence production from this mine during CY2013. However, procedural delays
cannot be ruled out in our view.
ECL to turn into a fully integrated player
With the upcoming production of coking coal and iron ore, ECL will turn into a
fully integrated steelmaker. Although there is lack of clarity on the timelines for the
commencement of meaningful production from its coking coal and iron ore mines,
ECLs margins are expected to be significantly higher than its peers once it reaches
optimum production capacity at its mines. Moreover, ECLs associate, ESL (39.33%
stake) with 2.5mn tonne of steel capacity is expected to benefit the most, as ECL
will supply coking coal and iron ore from its mines to ESL at subsidized rates
(ECLs COP + 20%).
Outlook and valuation
ECLs production ramp-up from its coking coal mine has faced a few hurdles and
its steel capacity expansion via ESL has also been delayed. Nevertheless, the
company is now on track to ramp up production of coking coal during FY2014,
while its steel project (ESL) is expected to have meaningful commercial production
from FY2014-15.
We have a positive stance on ECLs initiatives of gradually venturing into steel
making through its associate ESL. Furthermore, the companys backwardintegration initiatives through the allocation of iron ore (although not factored in
our estimates currently) and coking coal mines are expected to result in cost
savings from FY2014-15. We recommend Buy on the stock with a SOTP targetprice of `24.
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Electrosteel Castings | 4QFY2013 Result Update
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Exhibit 5:SOTP valuationParticulars (`)Standalone business 5.0x FY2015E EV/EBITDA 17
Stake in ESL 1x P/BV 6Stake in Lanco Ind. 20% discount to CMP 1
Target Price 24Source: Company, Angel Research
Note: For our SOTP valuation, we have excluded debt (while calculating net debt)
apportioned for funding ESL while valuing Standalone business. Also, while
calculating ECLs stake in ESL, we have deducted proportionate debt before we
value it using P/BV multiple.
Exhibit 6:Recommendation summaryCompanies CMP Target Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)
(`) price (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15EPrakash 37 48 Buy 501 30 8.0 7.2 0.2 0.2 4.8 4.6 3.2 3.4 4.6 4.8
Sarda 105 153 Buy 378 46 3.4 2.9 0.4 0.3 3.1 2.5 11.8 12.4 12.3 12.8
GPIL 87 118 Buy 275 35 2.6 1.9 0.3 0.2 3.8 2.9 11.2 13.1 11.6 12.5
Electrosteel Cast. 17 24 Buy 557 41 13.5 6.5 0.1 0.1 7.7 6.9 2.6 5.2 4.9 5.3Source: Angel Research
Company backgroundECL is a Kolkata-based manufacturer of DI pipes and fittings and CI pipes used
mainly for water supply and sewerage systems. The company has facilities at
Khardah and Haldia in West Bengal and Elavur in Tamil Nadu. ECL has all therequired clearances to operate a coking coal mine (reserves 231mn tonne) in
Parbatpur, Jharkhand. It is also at an advance stage in getting clearance for its
iron ore mine (reserves 91mn tonne) in Kodolibad, Jharkhand.
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Exhibit 7:EV/EBITDA
Source: Bloomberg, Angel Research
Exhibit 8:P/E band
Source: Bloomberg, Angel Research
Exhibit 9:P/BV band
Source: Bloomberg, Angel Research
0
500
1,000
1,500
2,000
2,500
3,000
Oct-07
Jan-08
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Apr-12
Jul-12
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Apr-13
(`cr)
1.0x 2.5x 4.0x 5.5x 7.0x
(40)
(20)
0
20
40
60
80
100
120
140
Oct-07
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Oct-10
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(`)
3x 8x 13x 18x
0
50
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350
Oct-07
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Jul-08
Oct-08
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Apr-11
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(`)
0.5x 1.0x 1.5x 2.0x
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Electrosteel Castings | 4QFY2013 Result Update
May 15, 2013 7
Profit & loss statement (Consolidated)Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ENet Sales 1,580 1,871 2,023 2,154 1,976 2,017Other operating income 30 34 79 60 63 66Total operating income 1,610 1,905 2,102 2,214 2,038 2,083% chg (18.5) 18.3 10.3 5.3 (7.9) 2.2
Total Expenditure 1,280 1,604 1,997 2,016 1,806 1,828
Net Raw Materials 646 897 1,091 1,159 967 965
Other Mfg costs 503 558 747 674 649 662
Personnel 131 149 159 183 191 200
Other - - - - - -
EBITDA 330 302 105 198 232 255% chg 13.4 (8.6) (65.3) 89.4 17.4 9.8
(% of Net Sales) 20.9 16.1 5.2 9.2 11.8 12.7
Depreciation & Amortization 54 56 57 56 63 66
EBIT 276 246 48 142 169 189% chg 16.4 (11.1) (80.5) 196.7 18.7 12.0
(% of Net Sales) 17.5 13.1 2.4 6.6 8.6 9.4
Interest & other Charges 52 86 111 126 134 143
Other Income 87 62 74 95 100 105
(% of PBT) 28.1 27.9 654.0 85.1 74.0 69.5
Share in profit of Associates - - - - - -
Recurring PBT 312 221 11 112 136 151% chg 57.2 (28.9) (94.9) 889.4 20.8 11.7
Extraordinary Inc/(Expense) - - - - - -
PBT (reported) 312 221 11 112 136 151Tax 105.2 61.1 (17.1) 23.5 40.7 45.4
(% of PBT) 33.7 27.6 (150.8) 20.9 30.0 30.0
PAT (reported) 206 160 28 89 95 106Add: Share of earnings of asso. 28 18 (54) (112) (51) (16)
Less: Minority interest (MI) 1 0 1 1 - -
Extraordinary Expense/(Inc.) - - - - - -
PAT after MI (reported) 234 178 (27) (24) 44 90ADJ. PAT 234 178 (27) (24) 44 90% chg 73.1 (24.0) - - - 106.0(% of Net Sales) 14.8 9.5 (1.3) (1.1) 2.2 4.5
Basic EPS (`) 7.3 5.4 (0.8) (0.7) 1.3 2.7Fully Diluted EPS (`) 6.8 5.1 (0.8) (0.7) 1.3 2.6% chg 59.9 (24.0) - - - 106.0
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Balance Sheet (Consolidated)
Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 33 33 33 33 33 33Reserves& Surplus 1,588 1,714 1,663 1,620 1,644 1,715
Shareholders Funds 1,621 1,747 1,695 1,653 1,677 1,748Share Warrants 0 0 0 0 0 0
Minority Interest 5 5 11 13 13 13
Total Loans 1,298 1,393 1,559 1,709 1,809 1,859
Deferred Tax Liability 47 44 21 21 21 21
Other long term liabilities - 4 4 4 4 4
Long term Provisions - 9 10 10 10 10
Total Liabilities 2,971 3,203 3,300 3,410 3,534 3,655APPLICATION OF FUNDSGross Block 860 936 1,030 1,355 1,455 1,555
Less: Acc. Depreciation 322 382 445 498 562 628
Net Block 538 551 586 857 893 927Capital Work-in-Progress 397 438 664 489 439 389
Goodwill 2 14 14 14 14
Investments 1,067 1,425 1,074 962 911 895Long term loans and adv. - 72 75 75 75 75
Other non-current assets - 1 11 11 11 11
Current Assets 1,300 1,578 1,906 1,787 1,908 2,060
Cash 299 205 169 94 379 479
Loans & Advances 208 139 274 274 274 302
Other 793 1,182 1,462 1,329 1,165 1,189
Current liabilities 332 866 1,030 786 718 717
Net Current Assets 969 713 876 1,001 1,190 1,343Mis. Exp. not written off 0.0 0.0 - - - -
Total Assets 2,971 3,203 3,300 3,410 3,534 3,655
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Cash flow statement (Consolidated)
Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 312 223 11 112 136 151
Depreciation 54 56 57 56 63 66Change in Working Capital 172 (100) (399) (201) 96 (52)
Less: Other income (34) 50 101 - - -
Direct taxes paid (115) (59) (25) (24) (41) (45)
Cash Flow from Operations 389 170 (255) (56) 254 120Inc./ (Dec.) in Fixed Assets (174) (119) (238) (150) (50) (50)
Inc./ (Dec.) in Investments (307) (257) 333 - - -
Other income 13 (66) 38 - - -
Cash Flow from Investing (469) (442) 134 (150) (50) (50)Issue of Equity 15 - 4 - - -
Inc./(Dec.) in loans 359 277 266 150 100 50
Dividend Paid (Incl. Tax) (41) (41) (41) (19) (19) (19)
Others (50) (96) (109) - - -
Cash Flow from Financing 283 140 120 131 81 31Inc./(Dec.) in Cash 203 (132) (2) (76) 285 101
Opening Cash balances 95 215 82 81 5 290Closing Cash balances 299 82 81 5 290 391
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Electrosteel Castings | 4QFY2013 Result Update
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Key ratios
Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 2.5 3.3 - - 13.5 6.5P/CEPS 2.0 2.5 19.9 18.4 5.5 3.8
P/BV 0.3 0.3 0.3 0.3 0.1 0.1
Dividend yield (%) 7.4 7.4 7.4 2.9 2.9 2.9
EV/Sales 0.8 0.8 0.9 0.9 0.9 0.9
EV/EBITDA 4.0 4.7 16.8 10.0 7.7 6.9
EV/Total Assets 0.4 0.4 0.5 0.6 0.5 0.5
Per Share Data (`)EPS (Basic) 7.3 5.4 (0.8) (0.7) 1.3 2.7
EPS (fully diluted) 6.8 5.1 (0.8) (0.7) 1.3 2.6
Cash EPS 8.3 6.8 0.9 0.9 3.1 4.5
DPS 1.3 1.3 1.3 0.5 0.5 0.5
Book Value 49.6 53.4 51.9 50.6 136.4 267.9
Dupont AnalysisEBIT margin 17.2 12.9 2.3 6.4 8.3 9.1
Tax retention ratio (%) 66.3 67.1 85.0 82.0 70.0 70.0
Asset turnover (x) 0.7 0.7 0.7 0.7 0.7 0.7
RoIC (Post-tax) 7.5 6.2 1.4 3.7 4.0 4.4
Cost of Debt (Post Tax) 2.9 3.2 3.8 5.9 5.3 5.5
Leverage (x) 0.5 0.5 0.7 0.9 0.7 0.7
Operating RoE 9.7 7.7 (0.3) 1.8 3.0 3.7
Returns (%)RoCE (Pre-tax) 10.0 8.0 1.5 4.2 4.9 5.3
Angel RoIC (Pre-tax) 13.8 11.5 2.1 5.8 6.5 7.4
RoE 15.5 10.6 (1.6) (1.4) 2.6 5.2
Turnover ratios (x)Asset Turnover (Gross Block) 1.9 2.1 2.1 1.8 1.4 1.3
Inventory / Sales (days) 115 117 135 130 120 120
Receivables (days) 99 76 95 95 95 95
Payables (days) 89 112 130 130 130 130
WC cycle (ex-cash) (days) 212 115 110 137 160 151
Solvency ratios (x)Net debt to equity 0.5 0.5 0.7 0.9 0.7 0.7
Net debt to EBITDA 2.3 2.8 11.5 7.2 5.4 4.7
Interest Coverage 5.3 2.9 0.4 1.1 1.3 1.3
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Electrosteel Castings | 4QFY2013 Result Update
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Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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Disclosure of Interest Statement Electrosteel Castings
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Note: We have not considered any Exposure below`1 lakh for Angel, its Group companies and Directors
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