8/7/2019 plugin-BhushanSteel_AnandRathi_102011

1/6

Anand Rathi Financial Services, its affiliates and subsidiaries, do and seek to do business with companies covered in its research reports. Thus, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in makingtheir investment decision. Disclosures and analyst certifications are located in Appendix 1.

Anand Rathi Research India Equities

India I Equities

Metals

Results update

7 February 2011

Bhushan Steel

Transformation continues; maintain Buy

Bhushan Steels (BSL) 3QFY11 performance was robust, with~38% yoy growth in operating profit and 23% yoy growth in netprofit, on the back of improving utilization from its new hotrolled coil (HRC) plant. Maintain Buy.

Higher volume and realization boost revenue. BSL reported~36% yoy revenue growth to `19.4bn for 3QFY11, largely onaccount of 30% yoy growth in blended sales volume and 4% yoygrowth in blended realization. Sales volume stood at 0.46m tons in3QFY11 compared with 0.36m tons in 3QFY10. Volume was up13.2% qoq.

Higher utilization of HRC plant boosts EBITDA, whichgrew~38% yoy to `5.4bn. Despite raw-material cost pressure,EBITDA margin remained stable yoy, at 27.7%, in the quarter onaccount of benefits of the HRC plant. EBITDA/ton expandedUS$14/ton yoy to US$256/ton.

Net profit up 23% yoy to `2.8bn, owing to higher volume andbenefits of the HRC plant. Net profit, however, grew slower thanEBITDA due to higher interest costs, which grew ~75% yoy.

Change in estimate. We marginally trim our earnings estimate by3.6% for FY11, but largely maintain our estimates for FY12.

Valuation and risks. At current market price of`398/share, thestock trades at FY12e PE of 6.9x and EV/EBITDA of 4.8x. Webelieve that expansion coupled with backward integration wouldresult in significant expansion in earnings going forward. MaintainBuy. Key risks: Delay in expansion and higher leverage.

Rating: Buy Target Price: `516

Share Price: `398

Financials StandaloneYear end 31 Mar FY11e FY12e

Sales ( m) 71,296 76,710

Net profit ( m) 9,810 12,170

EPS ( ) 46.2 57.3

Growth (%) 16.0 24.1

PE (x) 8.6 6.9

PBV (x) 1.7 1.4

EV/EBITDA (x) 10.2 4.8

RoE (%) 21.9 21.9

RoCE (%) 10.4 11.9

Net gearing (%) 246.8 212.3

Source: Anand Rathi Research

Quarterly results (Standalone)Year end 31 Mar 3QFY10 3QFY11 % yoy 9MFY10 9MFY11 % yoy

Sales ( m) 14,290 19,427 35.9 40,322 50,343 24.9

EBITDA ( m) 3,903 5,376 37.7 10,300 14,347 39.3

EBITDA margin (%) 27.3 27.7 36bps 25.5 28.5 295bps

Interest (( m) 585 1,020 74.4 1,615 2,813 74.2

Depreciation ( m) 578 570 -1.3 1,674 1,636 -2.3

Other income ( m) 256 100 -61.1 648 272 -58.0

PBT ( m) 2,997 3,885 29.7 7,660 10,170 32.8

Tax ( m) 722 1,082 49.9 1,775 2,720 53.3

Tax rate (%) 24.1 27.8 375bps 23.2 26.7 357bps

PAT ( m) 2,275 2,804 23.2 5,885 7,451 26.6

Source: Company

Change in EstimatesTarget Reco

Key data BHUS IN/BSSL.BO

52-week high/low `545/ 252

Sensex/Nifty 18008/5396

3-m average volume US$8.8m

Market cap `85bn/US$1.9bn

Shares outstanding 212m

Free float 30.8%

Promoters 69.2%

FII 3.1%DII 1.2%

Public 26.5%

8/7/2019 plugin-BhushanSteel_AnandRathi_102011

2/6

7 February 2011 Bhushan Steel Transformation continues; maintain Buy

Anand Rathi Research 2

Quick Glance Financials and Valuations

Fig 1 Income statement ( m)

Year end 31 Mar FY09 FY10 FY11e FY12e FY13e

Net sales 49,575 56,404 71,296 76,710 106,956

Sales growth (%) 17.9 13.8 26.4 7.6 39.4

- Op. expenses 39,282 41,876 51,426 48,218 70,158

EBITDA 10,293 14,527 19,870 28,493 36,798

EBITDA margins (%) 20.8 25.8 27.9 37.1 34.4

- Interest 2521 2100 4087 6297 7607

- Depreciation 2344 2091 2772 5984 8480

+ Other income 181 1,178 428 460 642

- Tax 1,395 3,056 3,628 4,501 5,765

PAT 4,213 8,458 9,810 12,170 15,587

PAT growth (%) (0.6) 100.8 16.0 24.1 28.1

Consolidated PAT 4,213 8,458 9,810 12,170 15,587

FDEPS ( /share) 19.8 39.8 46.2 57.3 73.4

CEPS ( /share) 30.9 49.7 59.2 85.5 113.3

DPS ( /share) 0.5 0.5 0.5 0.5 0.5

Source: Company, Anand Rathi Research

Fig 2 Balance sheet ( m)Year to 31 Mar FY09 FY10 FY11e FY12e FY13e

Share capital 425 425 425 425 425

Reserves & surplus 19,917 39,125 48,811 60,857 76,320

Shareholders fund 20,342 39,550 49,236 61,282 76,745

Debt 80,662 114,041 127,731 139,931 152,131

Deferred Tax Lia. 2,463 3,295 3,295 3,295 3,295

Capital employed 107,472 157,253 180,629 204,875 232,538

Fixed assets 18,860 20,793 73,568 99,847 136,304

Investments 1,077 3,700 3,700 3,700 3,700

Working capital 12,290 20,464 17,393 17,404 20,723

Cash 1,244 1,202 5,309 9,028 15,352

Capital deployed 107,472 157,253 180,629 204,875 232,538

No. of shares (m) 212 212 212 212 212

Net Debt/Equity (%) 390 283 247 212 177

W C turn (days) 35 35 35 35 35Source: Company, Anand Rathi Research

Fig 3 Cash flow statement ( m)Year end 31 Mar FY09 FY10 FY11e FY12e FY13e

Consolidated PAT 4,213 8,458 9,810 12,170 15,587

+ Depreciation 2,344 2,091 2,772 5,984 8,480Cash profit 6,557 10,549 12,582 18,155 24,068

- Incr/(Decr) in WC 4,683 9,529 (3,071) 11 3,319

Operating cash flow 1,874 1,020 15,653 18,143 20,749

- Capex 17,702 29,013 25,113 26,500 26,500

Free cash flow (15,828) (27,993) (9,459) (8,357) (5,751)

- Dividend 84 110 124 124 124

+ Equity raised 4,004 7,001 - - -

+ Debt raised 19,560 30,624 13,690 12,200 12,200

- Investments 491 2,590 - - -

- Misc Items 6,193 6,974 - - -

Net cash flow 967 (42) 4,107 3,719 6,325

+ Opening cash 276 1,244 1,202 5,309 9,028

Closing cash 1,244 1,202 5,309 9,028 15,352Source: Company, Anand Rathi Research

Fig 4 PE Band

4x

6x

8x

10x

10

110

210

310

410

510

610

A

pr-06

Jan-07

O

ct-07

Aug-08

M

ay-09

Feb-10

D

ec-10

Source: Bloomberg, Anand Rathi Research

Fig 5 EV/EBITDA Band

8x

10x

12x

14x

10

210

410

610

810

1,010

1,210

1,410

Apr-06

Jan-07

Oct-07

Aug-08

May-09

Feb-10

Dec-10

Source: Bloomberg, Anand Rathi Research

Fig 6 Bhushan Steel vs. BSE Metals

BSE Metal

Bhushan Steel

200

250

300

350

400

450

500

550

Jan-10

Feb-10

Feb-10

Mar-10

Apr-10

Apr-10

May-10

Jun-10

Jun-10

Jul-10

Aug-10

Sep-10

Sep-10

Oct-10

Nov-10

Nov-10

Dec-10

Jan-11

Source: Bloomberg

8/7/2019 plugin-BhushanSteel_AnandRathi_102011

3/6

8/7/2019 plugin-BhushanSteel_AnandRathi_102011

4/6

7 February 2011 Bhushan Steel Transformation continues; maintain Buy

Anand Rathi Research 4

Financials

Fig 8 Income statement ( m)

Year-end 31 Mar FY09 FY10 FY11e FY12e FY13e

Net Sales 49,575 56,404 71,296 76,710 106,956

Change (%) 17.9 13.8 26.4 7.6 39.4

Expenditure 39,282 41,876 51,426 48,218 70,158

% of sales 79.2 74.2 72.1 62.9 65.6

EBITDA 10,293 14,527 19,870 28,493 36,798

Change (%) 23.2 41.1 36.8 43.4 29.1

% of Net Sales 20.8 25.8 27.9 37.1 34.4

Depreciation 2,344 2,091 2,772 5,984 8,480

EBIT 8,129 13,614 17,526 22,969 28,959

Interest & Fin. Charges 2,521 2,100 4,087 6,297 7,607

Other income 181 1,178 428 460 642

PBT 5,608 11,514 13,438 16,672 21,352

Taxes 1,395 3,056 3,628 4,501 5,765

Effective Rate (%) 24.9 26.5 27.0 27.0 27.0

Rep. PAT (after. EO) 4,213 8,458 9,810 12,170 15,587

Change (%) (0.6) 100.8 16.0 24.1 28.1

Adj. PAT 4,213 8,458 9,810 12,170 15,587

Change (%) (0.6) 100.8 16.0 24.1 28.1

% of Net Sales 8.5 15.0 13.8 15.9 14.6

Source: Company, Anand Rathi Research

Fig 9 Balance sheet ( m)

Year-end 31 Mar FY09 FY10 FY11e FY12e FY13e

Share Capital 425 425 425 425 425

Net Worth 24,346 39,917 49,602 61,649 77,112

Minorities interests - - - - - Loans 80,662 114,041 127,731 139,931 152,131

Deferred Tax Liability 2,463 3,295 3,295 3,295 3,295

Capital Employed 107,472 157,253 180,629 204,875 232,538

Gross Fixed Assets 32,819 36,859 92,406 124,669 169,607

Less: Depreciation 13,959 16,066 18,838 24,822 33,302

Net Fixed Assets 18,860 20,793 73,568 99,847 136,304

Capital WIP 74,001 111,093 80,659 74,895 56,458

Investments 1,077 3,700 3,700 3,700 3,700

Curr. Assets, L & Adv. 27,498 37,702 38,754 40,197 55,737

Inventories 12,304 19,627 15,015 12,063 17,504

Sundry Debtors 6,198 7,339 8,896 9,572 13,346Cash and Bank Balances 1,244 1,202 5,309 9,028 15,352

Loans and Advances 7,691 9,534 9,534 9,534 9,534

Other current assets 61 0 0 0 0

Current Liab. & Prov. 13,964 16,036 16,052 13,765 19,661

Current Liabilities 13,687 15,671 15,690 13,403 19,299

Provisions 277 365 362 362 362

Net Current Assets 13,534 21,666 22,702 26,432 36,075

Capital Deployed 107,472 157,253 180,629 204,875 232,538

Source: Company, Anand Rathi Research

8/7/2019 plugin-BhushanSteel_AnandRathi_102011

5/6

7 February 2011 Bhushan Steel Transformation continues; maintain Buy

Anand Rathi Research 5

Fig 10 Cash flow statement ( m)Year end 31 Mar FY09 FY10 FY11e FY12e FY13e

Consolidated PAT 4,213 8,458 9,810 12,170 15,587

+ Depreciation 2,344 2,091 2,772 5,984 8,480

Cash profit 6,557 10,549 12,582 18,155 24,068

- Incr/(Decr) in WC 4,683 9,529 (3,071) 11 3,319

Operating cash flow 1,874 1,020 15,653 18,143 20,749- Capex 17,702 29,013 25,113 26,500 26,500

Free cash flow (15,828) (27,993) (9,459) (8,357) (5,751)

- Dividend 84 110 124 124 124

+ Equity raised 4,004 7,001 - - -

+ Debt raised 19,560 30,624 13,690 12,200 12,200

- Investments 491 2,590 - - -

- Misc Items 6,193 6,974 - - -

Net cash flow 967 (42) 4,107 3,719 6,325

+ Opening cash 276 1,244 1,202 5,309 9,028

Closing cash 1,244 1,202 5,309 9,028 15,352

Source: Company, Anand Rathi Research

Fig 11 Ratio @`398Year-end 31 Mar FY09 FY10 FY11e FY12e FY13e

Per share Ratios ( )

Basic EPS 19.8 39.8 46.2 57.3 73.4

Fully diluted EPS 19.8 39.8 46.2 57.3 73.4

Book Value 96 188 234 290 363

Cash earnings per share 30.9 49.7 59.2 85.5 113.3

Dividend per share 0.5 0.5 0.5 0.5 0.5

Valuation (x)

P/E (Fully Diluted) 20.1 10.0 8.6 6.9 5.4

P/BV 4.2 2.1 1.7 1.4 1.1

EV/EBITDA 15.8 13.3 10.2 4.8 4.4

EV/Sales 3.3 3.4 2.9 1.8 1.5M-cap/Sales 1.7 1.5 1.2 1.1 0.8

Profitability Ratios (%)

RoCE (%) 8.9 10.3 10.4 11.9 13.2

RoE (%) 23.0 28.1 21.9 21.9 22.5

Turnover Ratios

Asset turnover ratio (x) 0.5 0.4 0.4 0.4 0.5

Working capital cycle (days) 35 35 35 35 35

Inventory (days) 129 129 129 129 129

Debtors (days) 46 46 46 46 46

Creditors (days) 139 139 139 139 139

Leverage Ratio

Debt-equity (x) 3.9 2.8 2.5 2.1 1.8Interest coverage ratio (x) 3.2 6.5 4.3 3.6 3.8

Margin Ratios (%)

EBITDA Margin 20.8 25.8 27.9 37.1 34.4

PBIT Margin 16.4 24.1 24.6 29.9 27.1

PBT Margin 11.3 20.4 18.8 21.7 20.0

PAT Margin 8.5 15.0 13.8 15.9 14.6

Source: Company, Anand Rathi Research

8/7/2019 plugin-BhushanSteel_AnandRathi_102011

6/6

Appendix 1

Analyst CertificationThe views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of thecompensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the researchanalyst(s) in this report.

Important Disclosures on subject companies

Rating and Target Price History (as of 7 February 2010)

Bhushan

1

0

100

200

300

400

500

600

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

Date Rating TP ( ) SharePrice ( )

1 11-Jan-11 Buy 516 424

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation basedupon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment bankingrevenues.

Anand Rathi Ratings Definitions

Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (US$1bn) >20% 5-20%