Electrosteel Casting, 1Q FY 2014

7/27/2019 Electrosteel Casting, 1Q FY 2014

1/11

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

Quarterly highlights (Standalone)(` cr) 1QFY14 1QFY13 yoy (%) 4QFY13 qoq (%)Net sales 466 428 8.8 495 (5.9)EBITDA 38 11 236.7 40 (6.2)

% margin 8.1 2.6 549bp 8.1 (2)bp

Adj. net profit 45 17 161.8 48 (5.8)Source: Company, Angel Research

For 1QFY2014, Electroste el Castings (ECL) reported an 8.8% yoy jump in top-

line, while its EBITDA grew by 236.7% yoy. We maintain our Buy recommendationon the stock.Lower costs lead to higher profits: ECLs 1QFY2014 net sales rose by 8.8% yoy to`466cr due to higher realizations in our view. ECL reported an EBITDA of `38cr in

1QFY2014, compared to an EBITDA of `11cr in 1QFY2013, due to lower raw

material and power costs and lower other expenditure; the EBITDA margin also

increased by 549bp. The companys depreciation costs decreased by 2.7% yoy to

`13cr and interest costs declined by 13.0% yoy to `29cr. Therefore, the company

posted a PAT of `45cr compared to a PAT of `17cr in 1QFY2013.

Other updates: The iron ore mine continues to await stage 2 clearance. Thecompany aims to produce 0.6-0.7mn tonne of coking coal in FY2014. The

company has an order backlog of approximately 9 months.

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 `15.Key financials (Consolidated)

Y/E March (` cr) FY2012 FY2013 FY2014E FY2015ENet sales 2,023 2,154 1,976 2,017% chg 8.0 6.5 (8.3) 2.1

Net profit (27) (24) 2 42% chg - - - 1,792.9

FDEPS (`) (0.8) (0.7) 0.1 1.2OPM (%) 5.2 9.2 11.8 12.7

P/E (x) - - 172.3 9.1

P/BV (x) 0.2 0.2 0.1 0.1

RoE (%) (1.6) (1.2) 0.1 1.9

RoCE (%) 1.5 3.6 3.0 3.2

EV/Sales (x) 0.8 1.0 0.9 0.9

EV/EBITDA (x) 15.0 10.4 7.9 7.0

Source: Company, Angel Research: Note: CMP as of 16, August 2013

BUYCMP `11

Target Price `15

Investment Period 12 months

Stock Info

Sector

316

Bloomberg Code ELSC@IN

Shareholding Pattern (%)

Promoters 48.6

MF / Banks / Indian Fls 9.9

FII / NRIs / OCBs 5.5

Indian Public / Others 36.1

Abs. (%) 3m 1yr 3yr

Sensex (8.1) 5.3 3.0

ELSC (35.5) (42.0) 5.3

1

18,598

5,508

ELST.BO

359

0.8

29/10

85,066

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

1QFY2014 Result Update | Steel

August 19, 2013


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Electrosteel Castings | 1QFY2014 Result Update

August 19, 2013 2

Exhibit 1:1QFY2014 performance (Standalone)Y/E March (` cr) 1QFY14 1QFY13 yoy % 4QFY13 qoq % FY2013 FY2012 yoy %Net sales 466 428 8.8 495 (5.9) 2,154 2,023 6.5Raw material 247 232 6.1 282 (12.5) 1,159 1,091 6.2% of net sales 52.9 54.3 57.0 53.8 54.0

Power & Fuel 37 35 5.2 37 (0.9) 150 144 4.8

% of net sales 7.9 8.2 7.5 7.0 7.1

Staff cost 34 31 11.6 37 (6.7) 183 159 14.9

% of net sales 7.3 7.1 7.4 8.5 7.9

Other expenditure 137 137 (0.5) 118 15.7 524 603 (13.1)

% of net sales 29.4 32.1 23.9 24.3 29.8

Total expenditure 454 436 4.3 474 (4.1) 2,016 1,997 0.9

% of net sales 97.6 101.7 95.8 93.6 98.7

Operating profit 11 (7) - 21 (45.9) 138 26 440.6OPM(%) 2.4 (1.7) 4.2 6.4 1.3

Other operating income 26 19 42.1 19 36.8 60 79 (24.4)

EBIDTA 38 11 236.7 40 (6.2) 198 105 89.4EBITDA margins (%) 8.1 2.6 8.1 9.2 5.2

Interest 29 33 (13.0) 25 13.3 126 111 13.4

Depreciation 13 14 (2.7) 13 4.0 56 57 (1.5)

Other income 5 9 (38.8) 57 (90.5) 95 74 28.8

Profit before tax 1 (27) - 59 (98.0) 112 11 889.4% of net sales 0.3 (6.2) 12.0 5.2 0.6

Tax 1 (9) (106.7) 15 (95.8) 24 (17) -

% of PBT 52.8 34.9 24.9 20.9 (150.8)

Profit after tax 1 (17) - 44 (98.8) (24) (27) -Adjusted PAT 45 17 161.8 48 (5.8) (24) (27)

Source: Company, Angel Research

Strong operating performance due to lower costs

ECLs 1QFY2014 net sales rose by 8.8% yoy to `466cr due to higher realizations

in our view. ECL reported an EBITDA of `38cr in 1QFY2014, compared to an

EBITDA of `11cr in 1QFY2013, due to lower raw material and power costs and

lower other expenditure; therefore the EBITDA margin also increased by 549bp.

The companys depreciation costs decreased by 2.7% yoy to `13cr and interest

costs declined by 13.0% yoy to `29cr. Therefore, the company posted a PAT of

`45cr compared to a PAT of `17cr in 1QFY2013.


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August 19, 2013 3

Exhibit 2:Net sales rise 8.8% yoy in 1QFY2014


Exhibit 3:EBITDA stood at `38cr


Exhibit 4:Net profit stood at `45cr


503

428

479

473495

466

(4)

(2)

0

2

4

6

8

10

380

400

420

440

460

480

500

520

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

(%)

Net revenue (LHS) % yoy (RHS)

(`

cr)

54

45

(1)

5

11

81

4740

38

(2)

02

4

6

8

10

12

14

16

18

(10)

010

20

30

40

50

60

70

80

90

1QFY12 3QFY12 1QFY13 3QFY13 1QFY14

(%)

EBITDA (LHS) EBITDA margin (RHS)

(`

cr)

28

19

(11)

6

17

25

33

48 45

(4)

(2)

0

2

4

6

8

10

12

(20)

(10)

0

10

20

30

40

50

60

1QFY12 3QFY12 1QFY13 3QFY13 1QFY14

(%)

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

(`

cr)


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August 19, 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 commence 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 `15.


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August 19, 2013 5

Exhibit 5:SOTP valuation (FY2015E)` cr `/ share

Multiple applied 3.5 -

FY2015 EBITDA 255 -Implied EV (1) 893 -

CWIP@ 0.8x (2) 794 -

Net debt 1,438 -

less: debt assumed for ESL 490 -

Net debt after adjusting for ESL debt (3) 948 -

Value of standalone equity [(1)+ (2)- (3)] 249 7Investment in ESL (4) 700 -

less: debt assumed for ESL (5) 490 -

Equity value in ESL [(4)-(5)] 210 6Stake in Lanco Industries (20% discount to CMP) 45 1

Target Price (Standalone +ESL stake+ Lanco stake) - 15Source: 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 30 37 Buy 385 23 2.2 2.1 0.2 0.2 2.7 2.4 9.1 8.7 8.3 8.2

Sarda 82 98 Buy 268 19 3.2 3.0 0.3 0.3 3.3 2.8 9.5 9.5 8.9 9.3

GPIL 69 78 Buy 214 13 1.9 1.5 0.2 0.2 3.4 2.7 11.6 13.0 11.4 12.1

Electrosteel Cast. 11 15 Buy 359 33 172.3 9.1 0.1 0.1 7.9 7.0 0.1 1.9 3.0 3.2Source: 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 the

required 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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August 19, 2013 6

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

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Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-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

Jul-13

(`)

3x 8x 13x 18x

0

50

100

150

200

250

300

350

400

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

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Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

(`)

0.5x 1.0x 1.5x 2.0x


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August 19, 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 95 108

EBIT 276 246 48 142 137 148% chg 16.4 (11.1) (80.5) 196.7 (3.5) 7.4

(% of Net Sales) 17.5 13.1 2.4 6.6 7.0 7.3

Interest & other Charges 52 86 111 126 173 184

Other Income 87 62 74 95 100 105

(% of PBT) 28.1 27.9 654.0 85.1 155.5 151.9

Share in profit of Associates - - - - - -

Recurring PBT 312 221 11 112 64 69% chg 57.2 (28.9) (94.9) 889.4 (42.5) 7.5

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

PBT (reported) 312 221 11 112 64 69Tax 105.2 61.1 (17.1) 23.5 19.3 20.8

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

PAT (reported) 206 160 28 89 45 49Add: Share of earnings of asso. 28 18 (54) (112) (43) (7)

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

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

PAT after MI (reported) 234 178 (27) (24) 2 42ADJ. PAT 234 178 (27) (24) 2 42% chg 73.1 (24.0) - - - 1,792.9(% of Net Sales) 14.8 9.5 (1.3) (1.1) 0.1 2.1

Basic EPS (`) 7.3 5.4 (0.8) (0.7) 0.1 1.3Fully Diluted EPS ( ) 6.8 5.1 (0.8) (0.7) 0.1 1.2% chg 59.9 (24.0) - 1,792.9


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August 19, 2013 8

Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 33 33 33 33 33 33Reserves& Surplus 1,588 1,714 1,663 2,193 2,176 2,199

Shareholders Funds 1,621 1,747 1,695 2,226 2,209 2,232Share Warrants - - - - - -

Minority Interest 5 5 11 9 9 9

Total Loans 1,298 1,393 1,559 2,228 2,328 2,378

Deferred Tax Liability 47 44 21 34 34 34

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 4,518 4,601 4,673APPLICATION OF FUNDSGross Block 860 936 1,030 1,639 2,089 2,189

Less: Acc. Depreciation 322 382 445 505 600 708

Net Block 538 551 586 1,133 1,488 1,481Capital Work-in-Progress 397 438 664 993 643 593

Goodwill 2 14 14 14 14

Investments 1,067 1,425 1,074 982 939 932Long 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 1,866 2,089 2,226

Cash 299 205 169 346 659 754

Loans & Advances 208 139 274 172 172 189

Other 793 1,182 1,462 1,255 1,165 1,189

Current liabilities 332 866 1,030 570 671 671

Net Current Assets 969 713 876 1,297 1,418 1,555Mis. Exp. not written off - - - - - -

Total Assets 2,971 3,203 3,300 4,518 4,601 4,673


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August 19, 2013 9

Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 312 223 11 1,112 64 69

Depreciation 54 56 57 56 95 108Change in Working Capital 172 (100) (399) (450) 192 (42)

Less: Other income (34) 50 101 (962) - -

Direct taxes paid (115) (59) (25) (11) (19) (21)

Cash Flow from Operations 389 170 (255) (255) 332 114Inc./ (Dec.) in Fixed Assets (174) (119) (238) (303) (100) (50)

Inc./ (Dec.) in Investments (307) (257) 333 154 - -

Other income 13 (66) 38 (130) - -

Cash Flow from Investing (469) (442) 134 (279) (100) (50)Issue of Equity 15 0 4 (0) - -

Inc./(Dec.) in loans 359 277 266 180 100 50

Dividend Paid (Incl. Tax) (41) (41) (41) (17) (19) (19)

Others (50) (96) (109) 97 - -

Cash Flow from Financing 283 140 120 260 81 31Inc./(Dec.) in Cash 203 (132) (2) (275) 313 95

Opening Cash balances 95 215 82 81 278 591Closing Cash balances 299 82 81 278 591 686


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August 19, 2013 10

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 1.6 2.1 - - 172.3 9.1P/CEPS 1.3 1.6 12.9 11.9 3.9 2.5

P/BV 0.2 0.2 0.2 0.2 0.1 0.1

Dividend yield (%) 11.4 11.4 11.4 4.5 4.5 4.5

EV/Sales 0.7 0.7 0.8 1.0 0.9 0.9

EV/EBITDA 3.4 4.0 15.0 10.4 7.9 7.0

EV/Total Assets 0.4 0.4 0.5 0.5 0.4 0.4

Per Share Data (`)EPS (Basic) 7.3 5.4 (0.8) (0.7) 0.1 1.3

EPS (fully diluted) 6.8 5.1 (0.8) (0.7) 0.1 1.2

Cash EPS 8.3 6.8 0.9 0.9 2.8 4.3

DPS 1.3 1.3 1.3 0.5 0.5 0.5

Book Value 49.6 53.4 51.9 68.1 136.4 267.9

Dupont AnalysisEBIT margin 17.2 12.9 2.3 6.4 6.7 7.1

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

Asset turnover (x) 0.7 0.7 0.7 0.6 0.5 0.6

RoIC (Post-tax) 7.5 6.2 1.4 2.9 2.6 2.8

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 0.8 0.7 0.6

Operating RoE 9.7 7.7 (0.3) 0.7 0.7 1.0

Returns (%)RoCE (Pre-tax) 10.0 8.0 1.5 3.6 3.0 3.2

Angel RoIC (Pre-tax) 13.8 11.5 2.1 5.4 4.5 4.7

RoE 15.5 10.6 (1.6) (1.2) 0.1 1.9

Turnover ratios (x)Asset Turnover (Gross Block) 1.9 2.1 2.1 1.6 1.1 0.9

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 0.8 0.7 0.6

Net debt to EBITDA 2.3 2.8 11.5 8.6 6.4 5.6

Interest Coverage 5.3 2.9 0.4 1.1 0.8 0.8


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August 19, 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 investment

decision. 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 Pvt. 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

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

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sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this

document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

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Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking

or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or

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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 Pvt. Limited and its affiliates mayhave investment 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 Casting, 1Q FY 2014

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