Electrosteel Castings Result Updated

Result Update on Electrosteel Castings for 4QFY2011 with a Buy recommendation and a Target Price of `37 (12 months).

For 4QFY2011, Electrosteel Castings (ECL) reported good set of numbers.
Net sales grew by 60.5% yoy to `506cr and net profit increased by 85.4% yoy to `39cr. We continue to maintain our Buy recommendation on the Stock

Good numbers but on lower base: During 4QFY2011, net sales increased by 60.5% yoy to `506cr. Top-line growth was on account of low base effect as some of the capacities were closed in 4QFY2010. EBITDA margin remained flat yoy at 15.2% in 4QFY2011, despite raw-material cost as a percentage of sales increasing to 56.7% in 4QFY2011 compared to 45.7% in 4QFY2010. Interest expense fell by 52.8% yoy to `8cr and tax rate came in lower at 27.7% vs. 41.6% in 4QFY2010. As a result, net profit increased by 85.4% yoy to `39cr.

Outlook and valuation: We maintain our positive stance on the company’s initiatives of venturing into steel making through its associate Electrosteel Steels (EIL), which is setting up a 2.2mn tonne steel plant expected to commence production during early FY2013. Furthermore, the company’s backward integration initiatives through allocation of coking coal mines are expected to result in cost savings from FY2013. The stock is currently trading at 7.0x FY2012E and 5.7x FY2013E EV/EBITDA. On P/BV basis, it is trading at 0.5x each for FY2012E and FY2013E. We maintain our Buy recommendation on the stock with an SOTP target price of `37