Stock Market update on Monnet Ispat for 1QFY2012

Stock Market update on Monnet Ispat for 1QFY2012 with an Accumulate recommendation and a Target Price of `549 (12 months).

Flat top-line performance: For 1QFY2012, Monnet Ispat (MIL) reported net sales growth of 1.6% yoy to `427cr, mainly driven by a 33.6% increase in sponge iron realisation to `19,776/tonne, almost offset by the decline in sales volumes of sponge iron and power. The company’s sponge iron sales volume declined by 11.2% yoy to 150,578 tonnes and power sales volume declined by 20.5% yoy to 175mn units. Net realisation of structural steel increased by 10.0% yoy to `31,693/tonne, while power realisation dipped by 29.4% yoy to `3.4/unit.

EBITDA declines by 4.1% yoy: On account of lower realisation on power sales, EBITDA declined by 4.1% to `116cr. Other income increased to `11cr compared to `2cr in 1QFY2011. Hence, net profit grew by 0.6% yoy to `73cr in 1QFY2012.

Utkal B2 mine received forest stage-II clearance: MIL has received stage-II of forest clearance for its Utkal Mine. The company expects to start production soon after the mining lease is executed by December 2011.

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 the timely expansion of the 1.5mtpa steel plant and unlocking of value in Monnet Power, which is implementing the 1,050MW power project. Most of these projects would be backed by captive resources. Hence,

we recommend Accumulate on the stock with a target price of `549.