Electrosteel 4Q FY 2013

7/30/2019 Electrosteel 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly highlights (Standalone)(` cr) 4QFY13 4QFY12 yoy (%) 3QFY13 qoq (%)Net sales 495 503 (1.5) 473 4.7EBITDA 40 5 717.1 47 (14.0)

% margin 8.1 1.0 715bp 9.9 (177)bp

Adj. net profit 44 6 652.7 33 34.4Source: Company, Angel Research

For 4QFY2013, Electroste el Castings (ECL) reported a strong growth in operating

profit mainly due to decline in costs as a percentage of sales. We maintain ourBuy recommendation on the stock.Lower costs lead to higher profits:ECLs 4QFY2013 net sales declined by 1.5%yoy to `495cr due to lower realizations in our view. ECL reported an EBITDA of

`40cr in 4QFY2013, compared to an EBITDA of `5cr in 4QFY2012, due to lower

raw material costs, Power costs and other expenditure and therefore EBITDA

margins also increased by 715bp. The companys other income rose by 135.8%

yoy to `57cr and depreciation costs declined by 7.5% yoy to `13cr. Therefore, the

company posted a PAT of `44cr compared to a PAT of `6cr in 4QFY2012.

Update on mines: Iron ore mine continues to await stage 2 clearance. Thecompany has ramped up coal production from its coking coal mine to a monthly

run-rate of 35,000 tonnes. The company aims to produce 0.6-0.7mn tonnes of

coking coal in FY2014.

Outlook and valuation:We maintain our positive stance on the companysinitiatives of venturing into steel making through its associate ESL. Further, the

companys backward integration initiatives through the allocation of iron ore

(although not factored in our estimates currently) and coking coal mines are

expected to result in cost savings from FY2014-15. We maintain our Buy view onthe stock with a SOTP target price of `24.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 2,023 2,154 1,976 2,017% chg 8.0 6.5 (8.3) 2.1

Net profit (27) (24) 44 90% chg - - - 106.0

FDEPS (`) (0.8) (0.7) 1.3 2.6OPM (%) 5.2 9.2 11.8 12.7

P/E (x) - - 13.5 6.5

P/BV (x) 0.3 0.3 0.1 0.1

RoE (%) (1.6) (1.4) 2.6 5.2

RoCE (%) 1.5 4.2 4.9 5.3

EV/Sales (x) 0.9 0.9 0.9 0.9

EV/EBITDA (x) 16.8 10.0 7.7 6.9

Source: Company, Angel Research

BUYCMP `17

Target Price `24

Investment Period 12 months

Stock Info

Sector

1,628

Bloomberg Code ELSC@IN

Shareholding Pattern (%)

Promoters 48.6

MF / Banks / Indian Fls 9.9

FII / NRIs / OCBs 5.5Indian Public / Others 36.1

Abs. (%) 3m 1yr 3yr

Sensex 3.8 23.8 18.9

ELSC (23.9) (11.2) 23.8

1

20,213

6,147

ELST.BO

557

0.7

29/15

184,767

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Net debt (` cr)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Bhavesh ChauhanTel: 022- 39357600 Ext: 6821

E-mail: [email protected]

Vinay RachhTel: 022- 39357600 Ext: 6841

[email protected]

Electrosteel CastingsPerformance Highlights

4QFY2013 Result Update | Steel

May 15, 2013


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Electrosteel Castings | 4QFY2013 Result Update

May 15, 2013 2

Exhibit 1:4QFY2013 performance (Standalone)Y/E March (` cr) 4QFY13 4QFY12 yoy % 3QFY13 qoq % FY2013 FY2012 yoy %Net sales 495 503 (1.5) 473 4.7 2,154 2,023 6.5Raw material 282 294 (4.1) 255 10.6 1,159 1,091 6.2% of net sales 57.0 58.5 53.9 53.8 54.0

Power & Fuel 37 44 (15.0) 38 (1.4) 150 144 4.8

% of net sales 7.5 8.7 8.0 7.0 7.1

Staff cost 37 25 44.8 35 3.6 183 159 14.9

% of net sales 7.4 5.0 7.5 8.5 7.9

Other expenditure 118 162 (26.9) 105 12.8 524 603 (13.1)

% of net sales 23.9 32.2 22.2 24.3 29.8

Total expenditure 474 525 (9.7) 433 9.5 2,016 1,997 0.9

% of net sales 95.8 104.4 91.6 93.6 98.7

Operating profit 21 (22) - 40 (47.5) 138 26 440.6OPM(%) 4.2 (4.4) 8.4 6.4 1.3

Other operating income 19 27 (28.9) 7 179.6 60 79 (24.4)

EBIDTA 40 5 717.1 47 (14.0) 198 105 89.4EBITDA margins (%) 8.1 1.0 9.9 9.2 5.2

Interest 25 25 0.2 27 (5.5) 126 111 13.4

Depreciation 13 14 (7.5) 13 (4.5) 56 57 (1.5)

Other income 57 24 135.8 38 51.7 95 74 28.8

Profit before tax 59 (10) - 44 33.9 112 11 889.4% of net sales 12.0 (2.0) 9.4 5.2 0.6

Tax 15 (16) - 11 32.3 24 (17) (237.4)

% of PBT 24.9 159.5 25.2 20.9 -

Profit after tax 44 6 652.7 33 34.4 (24) (27) (12.3)Source: Company, Angel Research

Strong operating performance due to lower costs

ECLs 4QFY2013 net sales declined by 1.5% yoy to `495cr due to lower

realizations in our view. ECL reported an EBITDA of `40cr in 4QFY2013,

compared to an EBITDA of `5cr in 4QFY2012, due to lower raw material costs,

Power costs and other expenditure and therefore EBITDA margins also increased

by 715bp. The companys other income rose by 135.8% yoy to `57cr and

depreciation costs declined by 7.5% yoy to `13cr. Therefore, the company posted

a PAT of `44cr compared to a PAT of `6cr in 4QFY2012.


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May 15, 2013 3

Exhibit 2:Net sales decline by 1.5% yoy in 4QFY2013


Exhibit 3:EBITDA stood at `40cr


Exhibit 4:Net profit stood at `44cr


444

503

428

479 473

495

(2)

(1)

0

1

2

3

45

6

7

380

400

420

440

460

480

500

520

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

(%)

Net revenue (LHS) % yoy (RHS)

(`

cr)

77

54

45

(1)

511

81

47

40

(2)

02

4

6

8

10

12

14

16

18

(10)

010

20

30

40

50

60

70

80

90

4QFY11 2QFY12 4QFY12 2QFY13 4QFY13

(%)

EBITDA (LHS) EBITDA margin (RHS)

(`

cr)

39

28

19

(11)

6

29

25

33

44

(4)

(2)

0

2

4

6

8

10

(20)

(10)

0

10

20

30

40

50

4QFY11 2QFY12 4QFY12 2QFY13 4QFY13

(%)

Adj. net profit Adj. net profit margin (RHS)

(`

cr)


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May 15, 2013 4

Investment arguments

Backward integration initiatives to aid margin growth

ECL is on track to have an integrated business model in place through a)backward integration initiatives led by the allocation of mines and

b) focus on beefing up its logistics infrastructure to further reduce costs.

The company was granted mining lease for the Parbatpur coking coal mine in

Jharkhand in January 2008. The mine is estimated to have blast furnace grade

reserves of 231mn tonne. The company expects to commence meaningful

production from FY2014. For its iron ore requirements, ECL had received forest

stage-I clearance for its iron ore mines located at Kodolibad, West Singhbhum,

Jharkhand, from Ministry of Forests and Environment (MOEF) during February

2012. The mine has reserves of 91mn tonne with 64% Fe content. ECL expects to

commence production from this mine during CY2013. However, procedural delays

cannot be ruled out in our view.

ECL to turn into a fully integrated player

With the upcoming production of coking coal and iron ore, ECL will turn into a

fully integrated steelmaker. Although there is lack of clarity on the timelines for the

commencement of meaningful production from its coking coal and iron ore mines,

ECLs margins are expected to be significantly higher than its peers once it reaches

optimum production capacity at its mines. Moreover, ECLs associate, ESL (39.33%

stake) with 2.5mn tonne of steel capacity is expected to benefit the most, as ECL

will supply coking coal and iron ore from its mines to ESL at subsidized rates

(ECLs COP + 20%).

Outlook and valuation

ECLs production ramp-up from its coking coal mine has faced a few hurdles and

its steel capacity expansion via ESL has also been delayed. Nevertheless, the

company is now on track to ramp up production of coking coal during FY2014,

while its steel project (ESL) is expected to have meaningful commercial production

from FY2014-15.

We have a positive stance on ECLs initiatives of gradually venturing into steel

making through its associate ESL. Furthermore, the companys backwardintegration initiatives through the allocation of iron ore (although not factored in

our estimates currently) and coking coal mines are expected to result in cost

savings from FY2014-15. We recommend Buy on the stock with a SOTP targetprice of `24.


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Exhibit 5:SOTP valuationParticulars (`)Standalone business 5.0x FY2015E EV/EBITDA 17

Stake in ESL 1x P/BV 6Stake in Lanco Ind. 20% discount to CMP 1

Target Price 24Source: Company, Angel Research

Note: For our SOTP valuation, we have excluded debt (while calculating net debt)

apportioned for funding ESL while valuing Standalone business. Also, while

calculating ECLs stake in ESL, we have deducted proportionate debt before we

value it using P/BV multiple.

Exhibit 6:Recommendation summaryCompanies CMP Target Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) price (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15EPrakash 37 48 Buy 501 30 8.0 7.2 0.2 0.2 4.8 4.6 3.2 3.4 4.6 4.8

Sarda 105 153 Buy 378 46 3.4 2.9 0.4 0.3 3.1 2.5 11.8 12.4 12.3 12.8

GPIL 87 118 Buy 275 35 2.6 1.9 0.3 0.2 3.8 2.9 11.2 13.1 11.6 12.5

Electrosteel Cast. 17 24 Buy 557 41 13.5 6.5 0.1 0.1 7.7 6.9 2.6 5.2 4.9 5.3Source: Angel Research

Company backgroundECL is a Kolkata-based manufacturer of DI pipes and fittings and CI pipes used

mainly for water supply and sewerage systems. The company has facilities at

Khardah and Haldia in West Bengal and Elavur in Tamil Nadu. ECL has all therequired clearances to operate a coking coal mine (reserves 231mn tonne) in

Parbatpur, Jharkhand. It is also at an advance stage in getting clearance for its

iron ore mine (reserves 91mn tonne) in Kodolibad, Jharkhand.


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Exhibit 7:EV/EBITDA

Source: Bloomberg, Angel Research

Exhibit 8:P/E band


Exhibit 9:P/BV band


0

500

1,000

1,500

2,000

2,500

3,000

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

(`cr)

1.0x 2.5x 4.0x 5.5x 7.0x

(40)

(20)

0

20

40

60

80

100

120

140

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

(`)

3x 8x 13x 18x

0

50

100

150

200

250

300

350

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

(`)

0.5x 1.0x 1.5x 2.0x


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May 15, 2013 7

Profit & loss statement (Consolidated)Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ENet Sales 1,580 1,871 2,023 2,154 1,976 2,017Other operating income 30 34 79 60 63 66Total operating income 1,610 1,905 2,102 2,214 2,038 2,083% chg (18.5) 18.3 10.3 5.3 (7.9) 2.2

Total Expenditure 1,280 1,604 1,997 2,016 1,806 1,828

Net Raw Materials 646 897 1,091 1,159 967 965

Other Mfg costs 503 558 747 674 649 662

Personnel 131 149 159 183 191 200

Other - - - - - -

EBITDA 330 302 105 198 232 255% chg 13.4 (8.6) (65.3) 89.4 17.4 9.8

(% of Net Sales) 20.9 16.1 5.2 9.2 11.8 12.7

Depreciation & Amortization 54 56 57 56 63 66

EBIT 276 246 48 142 169 189% chg 16.4 (11.1) (80.5) 196.7 18.7 12.0

(% of Net Sales) 17.5 13.1 2.4 6.6 8.6 9.4

Interest & other Charges 52 86 111 126 134 143

Other Income 87 62 74 95 100 105

(% of PBT) 28.1 27.9 654.0 85.1 74.0 69.5

Share in profit of Associates - - - - - -

Recurring PBT 312 221 11 112 136 151% chg 57.2 (28.9) (94.9) 889.4 20.8 11.7

Extraordinary Inc/(Expense) - - - - - -

PBT (reported) 312 221 11 112 136 151Tax 105.2 61.1 (17.1) 23.5 40.7 45.4

(% of PBT) 33.7 27.6 (150.8) 20.9 30.0 30.0

PAT (reported) 206 160 28 89 95 106Add: Share of earnings of asso. 28 18 (54) (112) (51) (16)

Less: Minority interest (MI) 1 0 1 1 - -

Extraordinary Expense/(Inc.) - - - - - -

PAT after MI (reported) 234 178 (27) (24) 44 90ADJ. PAT 234 178 (27) (24) 44 90% chg 73.1 (24.0) - - - 106.0(% of Net Sales) 14.8 9.5 (1.3) (1.1) 2.2 4.5

Basic EPS (`) 7.3 5.4 (0.8) (0.7) 1.3 2.7Fully Diluted EPS (`) 6.8 5.1 (0.8) (0.7) 1.3 2.6% chg 59.9 (24.0) - - - 106.0


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May 15, 2013 8

Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 33 33 33 33 33 33Reserves& Surplus 1,588 1,714 1,663 1,620 1,644 1,715

Shareholders Funds 1,621 1,747 1,695 1,653 1,677 1,748Share Warrants 0 0 0 0 0 0

Minority Interest 5 5 11 13 13 13

Total Loans 1,298 1,393 1,559 1,709 1,809 1,859

Deferred Tax Liability 47 44 21 21 21 21

Other long term liabilities - 4 4 4 4 4

Long term Provisions - 9 10 10 10 10

Total Liabilities 2,971 3,203 3,300 3,410 3,534 3,655APPLICATION OF FUNDSGross Block 860 936 1,030 1,355 1,455 1,555

Less: Acc. Depreciation 322 382 445 498 562 628

Net Block 538 551 586 857 893 927Capital Work-in-Progress 397 438 664 489 439 389

Goodwill 2 14 14 14 14

Investments 1,067 1,425 1,074 962 911 895Long term loans and adv. - 72 75 75 75 75

Other non-current assets - 1 11 11 11 11

Current Assets 1,300 1,578 1,906 1,787 1,908 2,060

Cash 299 205 169 94 379 479

Loans & Advances 208 139 274 274 274 302

Other 793 1,182 1,462 1,329 1,165 1,189

Current liabilities 332 866 1,030 786 718 717

Net Current Assets 969 713 876 1,001 1,190 1,343Mis. Exp. not written off 0.0 0.0 - - - -

Total Assets 2,971 3,203 3,300 3,410 3,534 3,655


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May 15, 2013 9

Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 312 223 11 112 136 151

Depreciation 54 56 57 56 63 66Change in Working Capital 172 (100) (399) (201) 96 (52)

Less: Other income (34) 50 101 - - -

Direct taxes paid (115) (59) (25) (24) (41) (45)

Cash Flow from Operations 389 170 (255) (56) 254 120Inc./ (Dec.) in Fixed Assets (174) (119) (238) (150) (50) (50)

Inc./ (Dec.) in Investments (307) (257) 333 - - -

Other income 13 (66) 38 - - -

Cash Flow from Investing (469) (442) 134 (150) (50) (50)Issue of Equity 15 - 4 - - -

Inc./(Dec.) in loans 359 277 266 150 100 50

Dividend Paid (Incl. Tax) (41) (41) (41) (19) (19) (19)

Others (50) (96) (109) - - -

Cash Flow from Financing 283 140 120 131 81 31Inc./(Dec.) in Cash 203 (132) (2) (76) 285 101

Opening Cash balances 95 215 82 81 5 290Closing Cash balances 299 82 81 5 290 391


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Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 2.5 3.3 - - 13.5 6.5P/CEPS 2.0 2.5 19.9 18.4 5.5 3.8

P/BV 0.3 0.3 0.3 0.3 0.1 0.1

Dividend yield (%) 7.4 7.4 7.4 2.9 2.9 2.9

EV/Sales 0.8 0.8 0.9 0.9 0.9 0.9

EV/EBITDA 4.0 4.7 16.8 10.0 7.7 6.9

EV/Total Assets 0.4 0.4 0.5 0.6 0.5 0.5

Per Share Data (`)EPS (Basic) 7.3 5.4 (0.8) (0.7) 1.3 2.7

EPS (fully diluted) 6.8 5.1 (0.8) (0.7) 1.3 2.6

Cash EPS 8.3 6.8 0.9 0.9 3.1 4.5

DPS 1.3 1.3 1.3 0.5 0.5 0.5

Book Value 49.6 53.4 51.9 50.6 136.4 267.9

Dupont AnalysisEBIT margin 17.2 12.9 2.3 6.4 8.3 9.1

Tax retention ratio (%) 66.3 67.1 85.0 82.0 70.0 70.0

Asset turnover (x) 0.7 0.7 0.7 0.7 0.7 0.7

RoIC (Post-tax) 7.5 6.2 1.4 3.7 4.0 4.4

Cost of Debt (Post Tax) 2.9 3.2 3.8 5.9 5.3 5.5

Leverage (x) 0.5 0.5 0.7 0.9 0.7 0.7

Operating RoE 9.7 7.7 (0.3) 1.8 3.0 3.7

Returns (%)RoCE (Pre-tax) 10.0 8.0 1.5 4.2 4.9 5.3

Angel RoIC (Pre-tax) 13.8 11.5 2.1 5.8 6.5 7.4

RoE 15.5 10.6 (1.6) (1.4) 2.6 5.2

Turnover ratios (x)Asset Turnover (Gross Block) 1.9 2.1 2.1 1.8 1.4 1.3

Inventory / Sales (days) 115 117 135 130 120 120

Receivables (days) 99 76 95 95 95 95

Payables (days) 89 112 130 130 130 130

WC cycle (ex-cash) (days) 212 115 110 137 160 151

Solvency ratios (x)Net debt to equity 0.5 0.5 0.7 0.9 0.7 0.7

Net debt to EBITDA 2.3 2.8 11.5 7.2 5.4 4.7

Interest Coverage 5.3 2.9 0.4 1.1 1.3 1.3


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May 15 2013 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement Electrosteel Castings

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below`1 lakh for Angel, its Group companies and Directors

Electrosteel 4Q FY 2013

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