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MSFL - Visa Steel Q2FY12 Result Update

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                                                                                                                                                                       MSFL Research
Result Update - Q2FY12                                                                                                      Visa Steel Ltd.
Hold                                                                                                                        External environment taken toll
Reco                                                                              Downgraded
CMP                                                                                      ` 58                               Visa Steel numbers came below than our expectation due to lower production and extremely
Target Price                                                                             ` 55                               slow ramp up in recently started SMS.
Downside Potential                                                                      5.2%
Price Performance                                                                                                           Lower Volume spoiled the party
52 wk Hi/Lo                                                                                           65/33                 During Q2FY12, Top line plunged by 24.7% y-o-y and 33.1% q-o-q to ` 2444mln due to lower
All time Hi/Lo                                                                                        66/13                 volumes and stable realization in all products. The lower production is mainly attributed
6 mnth Average Vol                                                                                    67515                 towards unavailability of raw material and appalling market conditions. As macro conditions
Stock Beta                                                                                              0.27
                                                                                                                            continue to remain distressful, we believe that production is expected to remain under pressure
                                   VISA Steel                           BSE Metal
180
                                                                                                                            in next two quarters.
160

140                                                                                                                         Cost pressures increasing
120                                                                                                                         EBIDTA for Q2FY12 stood at ` 105.4mln which de-grew by 75.6% y-o-y & 76.5% q-o-q due to
100                                                                                                                         higher material cost As a result, EBITDA margin for the quarter plunged by 900 bps y-o-y & 800
 80                                                                                                                         bps q-o-q to 4.3% during the quarter. Going ahead we believe that margin will remain under
 60                                                                                                                         pressure due to rapidly increasing raw material cost and stable steel prices. Higher depreciation
      Nov-09




                                                            Nov-10




                                                                                                                   Nov-11
                                          Jul-10




                                                                                                 Jul-11




                                                                                                                            & interest cost couple with forex loss of ` 386.8mln has forced the company to report a net loss
                                 May-10




                                                                                        May-11
                        Mar-10




                                                                               Mar-11
               Jan-10




                                                                     Jan-11
                                                   Sep-10




                                                                                                          Sep-11




                                                                                                                            of ` 281.3mln.
Valuation
                                                   FY11                       FY12P                        FY13P            SMS & Rolling Mill Completed; however utilization is very tepid
P/E (x)                                            12.40                      -21.92                        9.11            The company has commercially commenced its SMS mill during in Q1FY12 and the rolling mill
P/BV (x)                                            1.79                        2.07                        1.78            has started in the month of October. However in H1FY12 production from SMS (18891 tons)
RONW (%)                                            14.4                        -9.4                        19.4
                                                                                                                            remained very tepid in due to weak external environment. We believe that production in
ROCE (%)                                             8.8                         3.0                         8.4
                                                                                                                            Q3FY12 will increase marginally as the demand scenario continues to remain weak. However
Peer Valuation (FY12)                                                                                                       the new 25 MW power plant is up and running and produced close to 57mln units during the
                   Prakash                                                                       Adhunik                    quarter.
P/E                    2.4                                                                           7.7
P/BV (x)               .42                                                                           8.4
                                                                                                                            Outlook looks challenging: Downgrade to hold
Equity Data                                                                                                                 At CMP of ` 58, the company is trading at P/E & EV/EVITDA of 9.1x and 7.7x of its FY13E
Market Cap. (` bln)                                                                                           6.4
                                                                                                                            respectively. Valuation looks stretched at this moment as the company is dealing with many
Face value (`)                                                                                                10
                                                                                                                            problems all at a time. We remain extremely cautious about growing fear of slow down in the
No of shares o/s (mln)                                                                                       110
                                                                                                                            Indian economy and ongoing crisis of raw materials. We believe that VISA Steel will withhold
                                          Sep’10                      Sep’11                                ∆%
                                                                                                                            this storm due to its forward integration. The capex will start generating fruits for the company
Promoters                                  74.00                       74.00                               0.00
                                                                                                                            form FY13 onwards and its margins and profitability will improve substantially. However next
DFI's                                       0.05                        2.00                                  -
FII's                                       4.54                        4.54                               0.00             two quarters will be very tough for the company as macro conditions continue to deteriorate.
Public                                     21.41                       19.46                              -9.11             Thus we downgrade VISA Steel from BUY to hold with revises TP of ` 55.

                                                                                                                            Summary Financials
 Tanuj Rastogi                                                                                                              ` in Mln                           2010               2011              2012P             2013P
 tanuj.rastogi@msflibg.in                                                                                                   Net Sales                         11,569            13,059             13,271             17,187
 (+91 22 3094 7134)                                                                                                         OPBDIT                             1,820              2,042             1,192              2,535
                                                                                                                            Net Profit                          490                515               -291                700
 Rohit Vaja                                                                                                                 EPS                                  4.5                4.7               -2.6               6.4
 rohit.vaja@msflibg.in                                                                                                      Networth                           3,179              3,565             3,090              3,605
 (+91 281 2481313)                                                                                                          Debt                              11,427            14,081             14,831             15,331
                                                                                                                            Fixed Assets                      15,867            22,188             23,177             23,574
                                                                                                                            Net Current Assets                  -646             -3,607            -4,322             -3,704
 November 15, 2011


                                                                                                     Institutional Business Group, MSFL
                                                        @p-sec, 306, Gresham Assurance House, 132, Mint Road, Fort, Mumbai – 400 001 India
                                                                                     Tel + 91 22 30947100 / 102 www.marwadionline.com
                                                           MSFL Research
Q2FY12 & H1FY12 Result Highlight
Description (INR Mln)              Q2FY12        Q2FY11      Y-o-Y     H1FY12     H1FY11      Y-o-Y
Net Sales                           2,444         3,248     -24.7%      6,096       5,453    11.8%
Other Income                           25            52     -51.8%         45         69     -34.8%
Total Income                        2,469         3,300     -25.2%      6,141       5,521    11.2%
Total Expenditure                    2364          2867     -17.6%       5587    4682.953    19.3%
Raw-Material consumed               2,825         2,200      28.4%      5,617       4,155    35.2%
Stock Adjustment                     -911          -125     627.7%      -1,096      -636     72.3%
Employee Expenses                     105           103       2.5%        206        203      1.4%
Purchase of Trading Goods              73           451     -83.8%         94        451     -79.3%
Other Expenses                      271.8         238.3      14.0%      767.2       510.0    50.4%
EBIDTA                              105.4         433.0     -75.6%      553.9       838.5    -33.9%
EBIDTA Margin (%)                   4.31%        13.33%    -900 bps     9.09%     15.38%    -602bps
Interest                              271           161      68.2%        451        330     36.6%
Depreciation                          124           121       2.8%        247        241      2.3%
Extra ordinary item                -386.82            0                -386.80         0
Other Income                           0.0          0.0                    0.0        0.0
PBT                                  -677           151                  -531        267
Total Tax                            -296            48                  -249         88
Net profit                           -381           103                  -281        179
EPS                                  -3.46         0.94                  -2.56       1.63
Source - Company, MSFL Research


Operatinal Highlights
                                    Q1FY11        Q2FY11    Q3FY11     Q4FY11     Q1FY12    Q2FY12
             Production (ton)                -               13,448     32,785     34992     27285
Pig iron     Sales (ton)              3,223        1,085       8,756    24,605     38779     18957
             Realization (`/ton)     15,221       12,578     20,723     24,412     23643     23740


             Production (ton)        77,037       78,995    105,894     78,414     94128     90512
Coke         Sales (ton)             47,975       61,833     49,850     82,317     68455     42032
             Realization (`/ton)     20,517       18,119     19,600     22,399     24447     20479


             Production (ton)        10,934       11,340       9,292    12,806      4963      3099
FC           Sales (ton)              4,290       16,287       7,630    13,785      5335      4101
             Realization (`/ton)     62,689       56,996     60,733     63,365     63574     59704


             Production (ton)        37,938       38,249     28,622     29,729     37571     38713
DRI          Sales (ton)             35,730       39,312     23,158     31,150     29782     27037
             Realization (`/ton)     14,456       14,766     16,597     18,633     19571     20000
Source - Company, MSFL Research




                                                                                                2
                                        MSFL Research
Financial Summary

Profit & Loss
Particulars (` in mln)      2009       2010      2011       2012P       2013P
Net Sales                 10,350      11,569    13,059     13,271       17,187
Total Expenditure           9,597      9,750    11,287      12,157      14,717
EBIDTA                        753      1,820     2,042       1,192       2,535
EBIDTA Margin (%)           7.3%      15.7%     15.6%         9.0%      14.8%
Depreciation                  308        468       482         510         603
EBIT                          445      1,352     1,560         681       1,932
Interest cost                 296        603       694         827         875
Operating Profit              149        749       866        -146       1,058
Other Income                 54.5      145.4        0.0         0.0         0.0
Extraordinary Item        1,184.7         0.0       0.0     -386.8          0.0
PBT                          -981        894       866        -533       1,058
Tax                          -322        395       351        -250         349
PAT (After MI)               -662        490       515        -291         700
PAT Margin (%)             -6.4%       4.2%      3.9%        -2.2%       4.1%
EPS                           -6.0        4.5       4.7        -2.6         6.4
Sales Growth (%)           52.0%      11.8%     12.9%         1.6%      29.5%
EBITDA Growth (%)         -18.1%     141.7%     12.2%      -41.6%      112.7%
PAT Growth (%)           -253.3%                 4.9%     -156.6%     -340.5%



Balance Sheet
Particulars (` in mln)      2009       2010      2011       2012P       2013P
Sources of Funds
Equity Share Capital       1,100      1,100      1,100      1,100       1,100
Reserves & Surplus         1,707      2,079      2,465      1,990       2,505
Networth                   2,807      3,179      3,565      3,090       3,605
Secured Loans              8,892     11,077     13,731     14,481      14,981
Unsecured Loans               38        350        350        350         350
Total Loans                8,930     11,427     14,081     14,831      15,331
Deferred Tax Liability        14        301        597        597         597
Minority Interest            322        337        337        346         354
TOTAL                     12,073     15,245     18,581     18,864      19,887

Application of Funds
Net Fixed Assets          13,197     15,867     22,188     23,177      23,574
Investment                     0          0          0          0           0
Current Assets             6,996      6,882      7,145      8,496      10,782
Current Liabilities        8,171      7,529     10,752     12,819      14,487
Net Current Assets        -1,175       -646     -3,607     -4,322      -3,704
Misc Expense not w/o          51         25          0          8          16
TOTAL                     12,073     15,245     18,581     18,864      19,887




                                                                           3
                                             MSFL Research
Cash Flow
Particulars (` in mln)             2009     2010     2011P    2012P    2013P
Internal accruals                  1,532    1,924     1,880     805     2,535
(Inc)/Dec in Net Current Assets    1,984     -607      992    1,831     -706
Cash flow from Operations          2,331    1,317    2,871    2,636    1,829
Inc/(Dec) in Debt                  1,941    2,501    2,657      750      500
Inc/(Dec) in Equity                  318        0        0        0           0
Cash flow from Financing           1,070    1,640    1,682     -270     -568
Fixed Asset formation             -3,014    -3,103   -5,023   -1,500   -1,000
Inc/(Dec) in Investment                0        0        0        0           0
Cash flow from Investment         -2,920    -2,935   -4,856   -1,500   -1,000
Net Change in Cash                   482       22     -303      866      261



Ratio
Valuation Ratio                     2009     2010    2011P    2012P    2013P
P/E                                  -9.6     13.0     12.4    -21.9      9.1
P/BV                                  2.3      2.0      1.8      2.1      1.8
EV/EBIDTA                            18.6      9.0      9.5     16.2      7.7
EV/Sales                              1.3      1.4      1.5      1.5      1.1
Dividend Yield (%)                 0.00%    1.72%    1.72%    2.59%    2.59%
EPS                                  -6.0      4.5      4.7     -2.6      6.4
DPS                                   0.0      1.0      1.0      1.5      1.5
Book Value                             25       29       32       28       33
Adj. ROE                          -23.6%    15.4%    14.4%    -9.4%    19.4%
Adj. ROCE                          -5.8%    10.2%     8.8%     3.0%     8.4%


Solvency Ratio (x)
Debt/Equity                         3.18      3.59     3.95    4.80      4.25
Net Debt/EBIDTA                    10.08      5.53     6.38   10.83      5.18


Turnover Ratio (x)
Asset Turnover                      0.84     0.89     0.80     0.69     0.59
Fixed Asset Turnover                1.52     1.70     1.40     1.64     1.74
Current Ratio                       0.86     0.91     0.66     0.66     0.74
Inventory (days)                    136      128      128      128      141
Debtors (days)                      29.0     20.5     13.4     18.3     16.6
Creditors (days)                   343.8    372.4    390.0    405.6    405.6




                                                                          4
                                                                                          MSFL Research
MSFL Disclaimer:
All information/opinion contained/expressed herein above by MSFL has been based upon information available to the public and the
sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness.
Neither MSFL nor any of its employees shall be in any way responsible for the contents. Opinions expressed are subject to change
without notice. This document does not have regard to the specific investment objectives, financial situation and the particular needs of
any specific person who may receive this document. This document is for the information of the addressees only and is not to be taken
in substitution for the exercise of judgement by the addressees. All information contained herein above must be construed solely as
statements of opinion of MSFL at a particular point of time based on the information as mentioned above and MSFL shall not be liable
for any losses incurred by users from any use of this publication or its contents.


Analyst declaration
We, Tanuj Rastogi & Rohit Vaja, hereby certify that the views expressed in this report are purely our views taken in an unbiased manner
out of information available to the public and believing it to be reliable. No part of our compensation is or was or in future will be linked
to specific view/s or recommendation(s) expressed by us in this research report. All the views expressed herewith are our personal views
on all the aspects covered in this report.


MSFL Investment Rating
The ratings below have been prescribed on a potential returns basis with a timeline of up to 12 months. At times, the same may fall out
of the price range due to market price movements and/or volatility in the short term. The same shall be reviewed from time to time by
MSFL. The addressee(s) decision to buy or sell a security should be based upon his/her personal investment objectives and should be
made only after evaluating the stocks’ expected performance and associated risks.


Key ratings:


  Rating                                 Expected Return
  Buy                                         > 15%
  Accumulate                                 5 to 15%
  Hold                                       -5 to 5%
  Sell                                        < -5%
  Not Rated                                      -




                                      Marwadi Shares & Finance Limited
                Institutional Business Group, MSFL                          Registered Office
                @p-sec, 306, Gresham Assurance House                        Marwadi Financial Plaza, Nava Mava Main Road,
                132, Mint Road, Fort, Mumbai – 400 001                      Off 150 FT. Ring Road, Rajkot - 360 005
                Tel : + 91 22 30947100 / 102 Fax : +91 22 2269 0478         Tel : + 91 281 2481313 / 3011000




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