1. Please refer to important disclosures at the end of this report 1
Particulars (` cr) 2QFY2011 2QFY2010 % chg (yoy) 1QFY2011 % chg (qoq)
Net sales 361 314 14.9 420 (14.2)
EBITDA 105 96 8.5 121 (13.7)
EBITDA margin (%) 29.0 30.7 (169bp) 28.8 18bp
Net profit 66 64 2.2 73 (9.8)
Source: Company, Angel Research
Lower production due to shutdowns: For 2QFY2011, Monnet Ispat (MIEL) posted
net revenue growth of 14.9% to `361cr, down 14.2% qoq. On account of the
maintenance shutdown undertaken during the quarter, sponge iron production
was lower by 5.3% yoy and 7.2% qoq to 162,851 tonnes, whereas power
production was flat yoy and down 15.8% qoq to 215mn units. While sponge iron
sales volume grew by 10.6% yoy to 157,026 tonnes, though down 7.4% qoq,
average realisations for sponge iron increased by 33.9% yoy, down 8.5% qoq.
Power sales volume increased by 3.5% yoy to 198mn tonnes but declined 10.2%
qoq. Power realisations increased by 3.0% yoy to `4.3/unit but fell by 11.5% qoq.
Margins contract due to higher iron cost: EBITDA margin contracted by
169bp yoy to 29.0% and was flat qoq primarily due to higher iron ore costs.
However, a 5.9% yoy fall in other expenses to `26cr restricted the fall in margin.
While interest expense declined by 10.1% yoy and 17.0% qoq to `12cr,
other income fell by 37.9% yoy to `7cr. Further, tax rate for the quarter stood at
19.9% v/s 17.1% in 2QFY2010. Consequently, net profit grew by 2.2% yoy to
`66cr, down 9.8% qoq.
Outlook and valuation: We believe timely execution of MIEL’s steel and power
projects can provide significant upside from current levels. We recommend Buy on
MIEL with an SOTP Target Price of `687, valuing the steel business at 6x FY2012E
EV/EBITDA and investment in Monnet Power at 1.8x P/BV.
Key financials (Standalone)
Y/E March (` cr) FY2009 FY2010E FY2011E FY2012E
Net sales 1,549 1,481 1,743 2,304
% chg 33.6 (4.4) 17.7 32.2
Adj. net profit 232 266 270 389
% chg 39.4 14.8 1.4 44.2
EPS (`) 45.4 44.3 44.9 64.8
EBITDA margin (%) 24.2 30.1 29.8 32.1
P/E (x) 13.1 13.5 13.3 9.2
P/BV (x) 2.2 1.9 1.8 1.5
RoE (%) 18.2 18.3 14.8 17.6
RoCE (%) 12.4 12.6 11.7 12.7
EV/Sales (x) 2.5 3.0 3.2 2.8
EV/EBITDA (x) 10.2 9.9 10.7 8.6
Source: Company, Angel Research
BUY
CMP `596
Target Price `687
Investment Period 12 months
Stock Info
Sector
Bloomberg Code MISP@IN
Shareholding Pattern (%)
Promoters 44.3
MF / Banks / Indian Fls 7.1
FII / NRIs / OCBs 31.6
Indian Public / Others 17.0
Abs. (%) 3m 1yr 3yr
Sensex 11.3 24.8 0.3
MIEL 32.1 59.9 61.5
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Steel
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
10
20,032
6,018
MNET.BO
3,580
0.6
655/343
53024
Paresh Jain
Tel: 022-40403800 Ext: 348
pareshn.jain@angelbroking.com
Pooja Jain
Tel: 022-40403800 Ext: 311
pooja.j@angelbroking.com
Monnet Ispat & Energy
Performance highlights
2QFY2011 Result Update | Steel
October 29, 2010
2. Monnet Ispat | 2QFY2011 Result Update
October 29, 2010 2
Exhibit 1: 2QFY2011 performance (Standalone)
Y/E March (` cr) 2QFY11 2QFY10 yoy (%) 1HFY10 1HFY10 yoy (%)
Net sales 361 314 14.9 781 670 16.5
Raw material 202 163 24.3 435 345 26.0
% of net sales 56.1 51.8 55.7 51.5
Power & fuel 10 9 6.4 21 18 16.8
% of net sales 2.7 2.9 2.6 2.6
Staff cost 18 18 (0.7) 37 35 7.1
% of net sales 4.9 5.7 4.8 5.2
Other expenditure 26 28 (5.9) 62 68 (9.0)
% of net sales 7.2 8.8 8.0 10.2
Total expenditure 256 218 17.7 555 466 19.1
% of net sales 71.0 69.3 71.1 69.5
Operating profit 105 96 8.5 226 204 10.7
OPM (%) 29.0 30.7 28.9 30.5
Other operating income - - - - - -
EBITDA 105 96 8.5 226 204 10.7
EBITDA margin (%) 29.0 30.7 28.9 30.5
Interest 12 13 (10.1) 26 33 (20.3)
Depreciation 18 18 3.1 37 35 3.5
Other income 7 12 (37.9) 10 15 (37.4)
Exceptional items 0 0 0 0
Profit before tax 82 77 5.7 173 151 14.3
% of net sales 22.7 24.7 22.1 22.5
Tax 16 13 23.1 34 26 34.4
% of PBT 19.9 17.1 19.9 16.9
Adj. net profit 66 64 2.2 138 125 10.3
Source: Company, Angel Research
Exhibit 2: EBITDA margin trend
Source: Company, Angel Research
Exhibit 3: Net profit trend
Source: Company, Angel Research
27
28
29
30
31
0
20
40
60
80
100
120
140
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
(%)
(`cr)
EBITDA (LHS) EBITDA margin (RHS)
0
5
10
15
20
25
52
56
60
64
68
72
76
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
(%)
(`cr)
Net Profit (LHS) Net margin (RHS)
4. Monnet Ispat | 2QFY2011 Result Update
October 29, 2010 4
Investment rationale
Expanding power capacity by 80MW in 4QFY2011E: MIEL is expanding its
power capacity by 80MW at Raigarh. The power plant, which is based on coal
and midlings, is expected to be operational by 4QFY2011E. We expect the
plant to contribute `95cr to the company’s bottom line in FY2012E.
Steel expansion of 1.5mn tonnes: MIEL is setting up a 1.5mn steel plant
through the BF-EAF route. Total capex for the project is pegged at `2,400cr,
with `1,400cr expected to be funded through debt and the balance through
equity. MIEL has tied up US $162mn of foreign currency loan and is
negotiating with banks for the balance amount. The plant is expected to begin
progressive commissioning in FY2012E. The pig iron and sinter plants are
expected to be commissioned in 1QFY2012E, while the sponge iron, SMS and
finished steel plants are expected to be commissioned in 3QFY2012E.
The pellet and coke oven plants are likely to go on stream post FY2012E.
Significant value unlocking lies ahead in Monnet Power: MIEL is setting up a
1,050MW (2x525) power plant through Monnet Power. The plant is being set
up at a cost of `5,000cr, with equity contribution of `1,200cr and the balance
being funded through debt. MIEL recently diluted 12.5% stake to Blackstone
for a consideration of `275cr. While the first unit is expected to be operational
by 1QFY2013E, the second unit is likely to come on stream by 2QFY2013E.
Mineral portfolio being further enriched: MIEL has been operating the
Milupara coal mine since FY2005. The company has also been granted the
Utkal B-2 coal mine, with reserves of 83mn tonnes. It has the capacity to mine
1.5mtpa of coal and is expected to be operational from 4QFY2011E.
5. Monnet Ispat | 2QFY2011 Result Update
October 29, 2010 5
Outlook and valuation
We believe timely execution of MIEL’s steel and power projects can provide
significant upside from current levels. While the 80MW power capacity expansion
will drive the earnings momentum in the near term, long-term stock performance
will be determined by timely expansion of the company’s 1.5mtpa steel plant and
unlocking of value in Monnet Power, which is implementing the 1,050MW power
project. We recommend Buy on the stock with an SOTP Target Price of `687,
valuing the steel business at 6x FY2012E EV/EBITDA and investment in
Monnet Power at 1.8x P/BV.
Exhibit 7: SOTP valuation
Steel business 6x FY2012E EV/EBITDA 405
Stake in Monnet Power 1.8x P/BV 282
Target price (`) 687
Source: Company, Angel Research
Exhibit 8: Key assumptions
FY2011E FY2012E
Sales volume (tonnes)
Sponge iron 572,745 616,838
Ingots & billets 28,047 32,830
Structural steel 90,000 100,000
Pig iron 0 75,000
Power (mn units) 847 1,324
Average realisation (`/tonne)
Sponge iron 17,000 17,500
Ingots & billets 24,272 24,772
Structural steel 27,772 28,272
Pig iron - 22,500
Power (`/unit) 5.0 5.0
Cost (`/tonne)
Iron ore 4,530 4,530
Purchased coal 4,600 4,700
Source: Company, Angel Research
Exhibit 9: EPS - Angel forecast v/s consensus
Year (`) Angel forecast Bloomberg consensus Variation (%)
FY11E 44.9 45.0 (0.2)
FY12E 64.8 66.3 (2.3)
Source: Bloomberg, Angel Research
12. Monnet Ispat | 2QFY2011 Result Update
October 29, 2010 12
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Monnet Ispat & Energy
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
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
