Flat top-line performance: Monnet Ispat (MIL) reported mere 1.6% yoy and 28.3% qoq net sales growth to `446cr due to higher realisations for 4QFY2011. Sponge iron sales volume fell by 5.5% yoy to 155,196 tonnes (up 4.7% qoq), while realisations grew by 24.8% yoy and 10.0% qoq to `19,617/tonne. MIL sold 2,604 tonnes of ferro alloy in 4QFY2011 vs. nil in 4QFY2010 (up 45.0% qoq). Power sales volume grew by 5.7% yoy and 11.8% qoq to 235mn units, but power realisations fell by 27.0% yoy and 8.1% qoq to `3.1/unit.
Margin flat yoy: EBITDA stood flat yoy at `129cr for 4QFY2011, as operating margin contracted slightly by 43bp yoy to 28.9%. However, operating margin dipped by 310bp qoq due to higher raw-material cost, which increased by 38.8% qoq to `248cr. Interest expense remained flat yoy at `18cr (`5.4cr in 3QFY2011) and other income increased to `6cr (flat qoq). Consequently, net profit grew by 5.7% yoy and 9.1% qoq to `77cr.
Outlook and valuation: MIL is on the verge of a massive expansion in its steel business. The 80MW power capacity expansion is expected to drive MIL’s earnings momentum in the near term. However, long-term stock performance will be determined by timely expansion of the 1.5mtpa steel plant and unlocking of value in Monnet Power, which is implementing the 1,050MW power project. However, MIL has reported slight delays in its expansion projects. In our view, further delays cannot be ruled out, given the massive expansion projects. Hence, we believe it is too early to play the volume growth story for MIL. We remain Neutral on the stock with a fair value of `533, valuing the steel business at 6.5x FY2013E EV/EBITDA and investment in Monnet Power at 2.0x P/BV.
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