1) Bhushan Steel reported a 22% increase in net revenue for Q4FY11, driven by higher domestic sales and realization. Net profit increased 19.5% YoY. 2) The company caters to the automotive and appliance sectors, with automotive accounting for 35% of revenue. It is moving up the value chain with a major expansion project. 3) The analyst recommends buying the stock with a 12-month target price of Rs 507, a 17% upside, based on improved operating efficiency and positioning in niche segments.

1.
BHUSHAN STEEL LTD :‐ BUY
Recommendation: BUY CMP: Rs 432; Target: Rs 507; Upside: 17%; Horizon: 1Y
BHUSHAN STEEL LTD
Stock Information:
Bloomberg BHUS IN
Market Cap (Rs BN/USD bn) 91.7/2.03
Face Value (Rs) 2
Book Value (Rs) 235.6
52 weeks H/L (Rs) 545/252
Daily Avg. Vol (lakh) 1.26
Listed At NSE/BSE
Equity capital (Rs cr) 42.47
Shareholding Pattern as on 31
st
March 2011
Promoter Holding 69.15%
FIIs 2.54%
DIIs 0.8 %
Public & Others 27.51%
Bhushan Steel Ltd (BSL) has reported a 22% surge in net revenue at Rs1966.2cr,
primarily driven by higher domestic contribution (in line with our estimates of Rs
1970.8cr). The company reported higher operating efficiency at 30.6% (above our
estimates of 27.8%) improved by 460bps on YoY basis and higher by 270bps on
sequential basis, as the captive consumption of HR Coils has declined 40% lower by
1000bps against 50% during last quarter. The net profit saw an increment of 19.5%
(YoY) at Rs 287.8cr against Rs 240.9cr reported last year.
Higher realization compensated for lower sales volume: the company has reported
41% surge in its production volume to 1022698ton during the quarter against 723618ton
reported last year, on sequential basis the production volume has gone up by 10% from
925188ton, however the sales volume shows discouraging figures and it has gone up by
only 8.3% to 425235ton on YoY, while on sequential basis it actually remains subdued by
8%. BSL achieved it’s highest-ever Q4 production numbers. The better than expected
realization, however muted the lower sales volume, the realization during the quarter has
gone up by 13% on YoY and 11% on sequential basis to Rs 46238/t resulting in a
impressive EBIDTA/t of over Rs 14000/t higher than our estimates.
Moving up the Value Chain: From being a mere convertor, the company is planning to
move up the value chain to a fully integrated primary steel producer by indulging itself
into a major backward integration cum expansion project in Orissa in three Phases.
Catering to Niche Segment: Currently, the Indian automakers import nearly 30% of
high-grade automotive steel, which creates a big opportunity for value-added players like
Bhushan Steel. BSL drives nearly 35% of its sales from auto sector and is one of the
preferred suppliers in the segment.
Valuations: BSL is expected to drive premium over its peers with improved operating
efficiency and strong domestic contribution coupled with its positioning in niche segment.
The stock is currently trading at an EV/EBIDTA of 11.7x, 9.8x and 9.7x on FY11E,
FY12E and FY13E earnings respectively. We have valued BSL on 1.75x of its FY12E
book value of Rs 289.9, we thus, recommend ‘BUY’ with the price target of Rs 507.
Rs Cr FY10 FY11E FY12E FY13E
Net Sales 5906.7 7000.5 8330.6 9163.7
EBIDTA 1423.7 2037.2 2718.3 2840.7
Margin% 24.1 29.1 32.6 31.0
PAT 845.8 1033.1 1173.1 1102.0
Margin% 14.3 14.8 14.1 12.0
EPS (Rs) 39.8 48.7 55.2 51.9
FairWealth Equity Research Desk
www.fairwealth.in/research.aspx
E-mail: research@fairwealth.in
DirectLine: 0124-3024710/828
FairWealth Equity Research
26th
May 2011
Price Performance
(%) 1M 3M 6M 12M
Absolute (17) 15.2 (4.1) 58
Rel to Nifty (8) 14.4 3.7 46.6

2. Fairwealth Research Desk
Bhushan Steel Ltd
2 26th
May 2011
Bhushan Steel ~ Financial Snapshot: Rs Cr
Q4 FY11 Q4 FY10
%change
YoY
Q3 FY11
%change
QoQ
FY11E FY10 %change
Net Sales 1966.2 1608.7 22.2 1942.7 1.2 7000.5 5640.9 24.1
EBIDTA 602.3 469.9 28.2 547.6 10.0 2037.2 1564.6 30.2
Margin% 30.6 26.1 450bps 27.7 290bps 29.1 25.7 340bps
Depreciation 69.0 52.4 31.6 57.0 20.9 232.5 219.8 5.8
Interest 132.7 55.1 140.8 102.0 30.1 414.0 216.6 91.2
Profit Before Tax 438.5 362.4 21.0 388.5 12.8 1455.7 1128.3 29.0
Tax 150.6 121.5 24.0 108.2 39.2 422.6 298.9 41.4
Net Profit 287.8 240.9 19.5 280.4 2.7 1033.1 829.4 24.6
Margin% 14.6 15.0 (40bps) 14.4 20bps 14.8 14.7 10bps
EPS Diluted 13.6 11.3 19.5 13.2 3.0 48.5 39.1 24.0
Operational Metrics
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
%
Change
YoY
%
Change
QoQ
Production (tones)
Flat Products 439,000 411,325 455,901 503,085 461,859 703,100 718,405 718,405 42.8 0
Long Products 219,935 172,689 227,613 220,533 211,426 145,164 206,783 221,493 0.44 7.1
Total 658,935 584,014 683,514 723,618 673,285 848,264 925,188 1,022,698 41.3 10.5
Sales Volume (tones)
Flat Products 250,665 246,042 256,931 292,549 215,808 329,452 367,434 335,057 14.5 -8.8
Long Products 110,544 93,488 102,443 100,230 93,525 83,491 100,024 90,178 -10.0 -9.8
Total 361,209 339,530 359,374 392,779 309,333 412,943 467,458 425,235 8.3 -9.0
Avg. Realization/t 36120.4 38243.5 39763.6 40957.9 44374.5 41625.8 41559.7 46238.0 12.9 11.3
EBIDTA/t (Rs) 9128.2 10282.2 10,859 11472.8 9319.1 11,848 11,500 14163.0 23.4 23.2

3. Fairwealth Research Desk
Bhushan Steel Ltd
3 26th
May 2011
Sustained revenue growth @ 22%
Bhushan steel’s Q4FY11 net revenue grew by 22.2% YoY, while it remains flat on
sequential basis to Rs 1966cr on account of higher sales volume which grew by 8.1% on
YoY and remained under pressured by 9% on sequential basis. The realization saw an
expansion of 13% on YoY to Rs 46238/t against Rs 43844.5/t, while on sequential basis
the expansion remains limited to 11%.
Catering to Niche Segment:
The company primarily caters to Auto and Auto ancillary industry and white goods
Industry. Auto and auto ancillary contributes nearly 35 % while white goods
contribute 13-14% to BSL’s revenues. Currently Indian automakers import nearly
30% of high-grade automotive steel and this augurs well for value-added players like
Bhushan Steel. BSL, is the one of the preferred supplier in these segment. It is one of
the leading CR Coils manufacturer in India, with manufacturing facilities located at
Sahibabad (UP) and Khopoli ( Maharashtra).
Shaibabad, being located near NCR region, gives BSL access to major OEMs
located in Delhi and Gurgaon, while Khopoli gives access to western Indian and a
major source of overseas market, being located near to ports. The company has
diverted its focus from trade to OEMs and exports. During FY11 OEMs contributed
62% to the revenue witnessing a considerable increase from a contribution of 56% in
FY04.
Moving on Higher Value Chain:
The company is undergoing a major backward integration cum expansion project.
The project has to be phased out in three steps. The first phase has already been
executed successfully in the year 2007, whereas phase-2 plans are on the brink of
completion. This would enhance BSL’s production capacity by 1.9MT taking it to
2.2MT (currently BSL has billet making capacity of 0.3MT). Phase-3 is scheduled to
be commence from the calendar year 2013-14. The company has already placed
orders for major equipments that would be required in the Phase-3 operations. After
the completion of Phase-3, the production capacity would increase to 5.2MT. The
commissioning of Orissa expansion project will ensure sufficient supply of HR Coils
1304.7 1298.5
1429.0
1608.7
1372.7
1718.9
1942.7 1966.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
0.0
500.0
1000.0
1500.0
2000.0
2500.0
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Net Sales YoY Change % - RHS
The EBIDTA/t soars by 23% both on YoY
basis and on sequential basis to Rs 14163/t on
the back higher realization.
Orissa Expansion plan would derive
volume growth for both Upstream and
Downstream businesses of the company.

4. Fairwealth Research Desk
Bhushan Steel Ltd
4 26th
May 2011
to its value- added plants (Sahibabad and Khopoli), while the excess HR coils will be
offloaded in the open market, as no major capacity expansion is being added to
these.
Bhushan Steel ~ Financial Statement: Rs Cr
FY10 FY11 FY12E FY13E
Net Sales 5906.7 7000.5 8102.0 8570.1
Total Expenditure 4483.1 4963.3 5509.3 5627.1
Operating Profit 1423.7 2037.2 2592.7 3008.1
Margin% 24.1 29.1 32.0 35.1
Interest 210.0 414.0 549.9 621.0
Gross Profit 1213.6 1623.2 2042.8 2387.1
Depreciation 209.1 232.5 417.0 468.3
Other Income 146.9 65.1 65.1 65.1
Profit Before Tax 1151.4 1455.7 1690.9 1983.9
Tax (Net) 305.6 422.6 456.5 535.6
Reported Net Profit 845.8 1033.1 1234.4 1448.2
Margin% 14.3 14.8 15.2 16.9
Extraordinary Items 1 0 0 0
Adjusted Net Profit 844.8 1033.1 1234.4 1448.2
Dividend 10.6 21.6 21.6 21.6
Equity Dividend % 25 50 50 50
EPS (Diluted) 39.8 48.6 58.1 68.2
Growth metrics%
FY09 FY10 FY11E FY12E FY13E
Revenue 13.5 24.7 19.0 10.0 13.5
EBIDTA 35.9 43.1 33.4 4.5 35.9
Net Profit 100.8 22.1 13.5 -6.1 100.8
EPS 100.8 22.1 13.5 -6.1 100.8

5. Fairwealth Research Desk
Bhushan Steel Ltd
5 26th
May 2011
Bhushan Steel ~ Balance Sheet: Rs Cr
2010 2011E 2012E 2013E
SOURCES OF FUNDS :
Share Capital 79.2 79.2 79.2 79.2
Reserves Total 3912.5 4924.4 6076.2 7157.0
Total Shareholders Funds 3991.7 5003.5 6155.4 7236.1
Secured Loans 8327.0 12042.8 14785.9 15817.8
Unsecured Loans 3077.2 3265.5 3265.5 3265.5
Total Debt 11404.1 15308.3 18051.4 19083.3
Total Liabilities 15395.8 20311.8 24206.8 26319.4
APPLICATION OF FUNDS :
Gross Block 3685.9 11685.0 12984.0 14135.5
Less: Accumulated Depreciation 1606.6 1839.1 2256.1 2724.4
Net Block 2079.3 9845.9 10727.9 11411.1
Capital Work in Progress 11109.3 7215.0 9905.3 10854.2
Investments 370.0 370.0 376.2 376.2
Current Assets, Loans & Advances
Inventories 1962.7 2334.5 2731.4 3184.7
Sundry Debtors 733.9 1375.7 1554.5 1818.8
Cash and Bank 120.2 330.5 318.9 441.5
Loans and Advances 953.4 1144.1 1315.7 1513.1
Total Current Assets 3770.2 5184.8 5920.5 6958.1
Less : Current Liabilities and Provisions
Current Liabilities 1567.1 1937.9 2314.7 2871.7
Provisions 36.5 36.5 36.5 36.5
Total Current Liabilities 1603.6 1974.4 2351.2 2908.2
Net Current Assets 2166.6 3210.4 3569.3 4049.9
Miscellaneous Expenses not written off 0.0 0.0 0.0 0.0
Net Deferred Tax -329.5 -329.5 -371.9 -371.9
Total Assets 15395.8 20311.8 24206.8 26319.5

6. Fairwealth Research Desk
Bhushan Steel Ltd
6 26th
May 2011
Bhushan Steel ~ Cash Flow: Rs Cr
2010 2011E 2012E 2013E
Cash From Operating Activities
PBT 1151.4 1455.7 1564.1 1469.3
Depreciation 209.1 232.5 417.0 468.3
Operating Profit Before WC Change 1360.5 1688.3 1981.1 1937.6
Change in Current Asset (excluding cash) -1146.6 -1204.3 -747.3 -914.9
Change in Current Liablities -193.3 370.8 376.8 557.0
Change In WC -953.0 -833.5 -370.5 -357.9
Cash Generated from Operations 407.5 854.7 1610.6 1579.6
Direct tax paid 186.0 422.6 391.0 367.3
Others Income 176.0 65.1 65.1 65.1
Net Cash Generated From Operations 397.0 367.0 1154.5 1147.2
Cash Flow From Investing Activites
Capital Expenditure (Capex) -2901.0 -4104.8 -3989.3 -2100.4
Investments -262.3 0.0 -6.2 0.0
Others Income 24.0 65.1 65.1 65.1
Net Cash Used In Investing Activities -3136.0 -4039.7 -3930.4 -2035.3
Free Cash Flow -2739.0 -3672.7 -2775.9 -888.1
Cash Flow from Financing Activites
Change in Debt 3062 3904.2 2743.1 1031.9
Equity issued 700.0 0.0 0.0 0.0
Dividend Paid -10.6 -21.2 -21.2 -21.2
Other 1017.0 0.0 42.5 0.0
Net Cash Used in Financing Activites 2734.8 3883.0 2764.4 1010.7
Net Increased in Cash & Cash Equivlants -4.2 210.3 -11.6 122.6
Cash and cash equivalents At the beginning 124.4 120.2 330.5 318.9
Net Increase in Cash and Cash Equivalents -4.2 210.3 -11.6 122.6
Cash and cash equivalents At the End 120.2 330.5 318.9 441.6

7. Fairwealth Research Desk
Bhushan Steel Ltd
7 26th
May 2011
Bhushan Steel ~ Key Ratios
2010 2011E 2012E 2013E
Per Share Ratios
Earnings per Share (EPS) 39.8 48.7 55.2 51.9
Book Value 188.0 235.6 289.9 340.8
Cash Earnings per Share 49.7 59.6 74.9 73.9
Dividend per Share 25 50 50 50
Valuations
P/E (Diluted) 10.8 8.9 7.8 8.3
P/BV 2.3 1.8 1.5 1.3
EV/EBIDTA 14.1 11.7 9.8 9.7
EV/Sales 3.4 3.4 3.2 3.0
Profitably Ratio (%)
RoCE% 7.9 8.9 9.5 9.0
RoE% 21.2 20.6 19.1 15.2
Turnover Ratio (%)
Working capital cycle (days) 70.1 89.3 83.6 82.3
Inventory (days) 125.9 120.1 118.0 125.1
Debtors (days) 47.1 70.7 67.2 71.5
Creditors (days) 102.9 101.5 101.6 114.3
Leverage Ratio
Debt-equity ratio (x) 2.9 3.1 2.9 2.6
Interest coverage ratio (x) 6.5 4.36 2.95 2.45
Margin Ratio (%)
EBIDTA Margin 24.1 29.1 32.6 31.0
PBT Margin 19.5 20.8 18.8 16.0
PAT Margin 14.3 14.8 14.1 12.0

8. Fairwealth Research Desk
Bhushan Steel Ltd
8 26th
May 2011
Stock Ratings
BUY The stock's total return is expected to exceed 15% over the next 12 months
ACCUMULATE The stock's total return is expected to be within 10‐15% over the next 12 months
REDUCE The stock's total return is expected to be within 0‐10% over the next 12 months
SELL The stock's total return is expected to give negative returns over the next 12 months
NOT RATED The Analyst has no recommendation on the stock under review
Fundamental Research Team
Name Designation Email ID
Sharmila Joshi Head‐Equity sharmila.joshi@fairwealth.in
Prakash Pandey AVP‐ Research & PMS prakash.pandey@fairwealth.in
Preeti Gupta Sr. Research Analyst preeti.gupta@fairwealth.in
Varun Khanna Research Analyst varun.khanna@fairwealth.in
Suvarna Binjola Research Analyst suvarna.binjola@fairwealth.in
Tanisha Jolly Research Analyst tanisha.jolly@fairwealth.in
Shakti Rajpal Research Analyst shakti.rajpal@fairwealth.in
Ankit Manuja Research Analyst ankit.manuja@fairwealth.in
Jitender Research Associate jitender@fairwealth.in
Nidhi Pahwa Research Associate nidhi.pahwa@fairwealth.in
Institutional Desk
Name Designation Email ID
Lokeshh Gowda Senior Manager lokeshh.g@fairwealth.in
Archana Bhui Trader archana.bhui@fairwealth.in
Rajan Bhatia Dealer rajan.bhatia@faairwealth.in

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