sarda energy, 30th january 2013

7/29/2019 Sarda Energy, 30th January 2013

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

EBITDA 71 65 10.7 72 (0.9)

EBITDA margin (%) 19.3 22.7 (334)bp 20.6 (124)bp

Source: Company, Angel Research

For 3QFY2013, Sarda Energy (SEML) reported a strong growth in net sales;

however, its PAT declined 3.3% yoy due to higher interest costs.

During 3QFY2013, SEMLs net sales

grew by 29.9% yoy to `370cr driven by a healthy performance from the steel

business (+52.7% yoy to `275cr). Ferro alloy sales volumes on the other hand

were down by 13.5% yoy to 14,014 tonne but the realizations improved by 19.0%

yoy to `64,521/tonne. Billets sales volume increased by 215.7% yoy to 6,522

tonne; pellet sales increased significantly by 293.1% yoy to 79,144 tonne.

Despite 29.9% yoy

growth in top-line, EBITDA grew only 10.7% yoy due to lower realizations from

Steel segment. EBITDA margins fell by 334bp yoy to 19.3%. The companys

interest costs increased by 23.4% yoy to `18cr and the other income was lower by

59.4% yoy to `4cr which led to the net profit falling by 3.3% yoy to `27cr.

We believe that SEML is well poised to benefit from a)

backward integration into coal and iron ore, b) commercial production of pellets

and c) increased power and ferro alloy production. Moreover, firm sponge iron

and pellet prices should lead to higher capacity utilization in FY2014, thereby

leading to higher sales volumes.

% chg 67.4 25.7 31.1 3.6

% chg 133.3 19.4 103.1 8.6

OPM (%) 13.4 12.5 19.0 19.1

P/E (x) 10.9 9.1 4.5 4.1

P/BV (x) 0.7 0.6 0.5 0.5

RoE (%) 7.9 6.9 12.2 11.9

RoCE (%) 5.0 4.5 13.0 12.4

EV/Sales (x) 1.0 0.8 0.7 0.6

EV/EBITDA (x) 7.7 6.6 3.5 3.3


CMP `131

Target Price `148

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr) 654

Bloomberg Code SEML@IN

Shareholding Pattern (%)

Promoters 66.5

MF / Banks / Indian Fls 7.2

FII / NRIs / OCBs 6.5Indian Public / Others 19.8

Abs. (%) 3m 1yr 3yr

Sensex 7.9 16.6 23.3

SEML (0.6) 6.7 (32.6)

10

20,103

6,075

SAEM.BO

468

1.3

156/111

21,175Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Steel

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Tel: 022- 39357600 Ext: 6821

E-mail: [email protected]

Tel: 022- 39357600 Ext: 6841

[email protected]

Performance highlights

3QFY2013 Result Update | Steel

January 28, 2013


2/12

Sarda Energy| 3QFY2013 Result Update

January 28, 2013 2

Exhibit 1:

Raw material 220 163 35.4 215 2.5 635 496 28.1% of net sales 59.5 57.1 61.2 60.1 62.8

Staff cost 12 10 20.7 12 2.8 36 29 23.2

% of net sales 3.3 3.5 3.4 3.4 3.7

Other expenditure 69 50 38.4 54 26.6 194 124 56.6

% of net sales 18.5 17.4 15.4 18.4 15.7

Total expenditure 301 222 35.4 281 7.2 865 656 31.9

% of net sales 81.3 78.0 80.0 81.8 83.0

OPM (%) 18.7 22.0 20.0 18.2 17.1

EBITDA margins (%) 19.3 22.7 20.6 19.0 17.2

Interest 18 15 23.4 18 2.0 55 26 113.1

Depreciation 16 17 (5.1) 16 3.6 48 46 4.3

Other income 4 9 (59.4) 3 16.7 13 15 (11.2)

Exceptional items - - - - - - - -

% of net sales 10.9 14.5 11.8 10.5 5.4

Tax 13 13 1.0 14 (3.1) 37 14 161.9

% of PBT 33.3 32.4 33.5 32.9 32.6

% of net sales 7.3 9.8 7.9 7.1 3.7


Exhibit 2:Quarterly production volumeSponge iron 51,466 57,995 61,914 56,886 60,238 66,382 68,811 72,667 66,861

Billets+ ingots 26,624 28,133 23,425 24,999 16,433 29,812 30,093 24,243 29,184

Ferro alloys 16,195 14,580 13,876 15,878 17,798 16,819 16,035 17,068 12,311

Power (mn units) 112 148 140 132 155 149 145 143 128

Pellet 45,848 54,464 56,144 71,497 126,899 93,062 34,081 126,973 146,663

Wire rods 12,899 23,355 9,979 21,186 22,254 32,297 29,148 27,587 29,746



3/12


January 28, 2013 3

Exhibit 3:Quarterly sales volumeSponge Iron 23,937 30,579 39,356 36,552 35,780 36,996 44,331 44,331 38,082

Billets+ingots 11,644 5,611 9,716 9,798 2,066 3,701 6,619 4,256 6,522Ferro alloys 16,441 16,016 14,622 16,438 16,197 17,837 17,928 17,248 14,014

Power (mn units) 7 42 40 20 42 25 28 21 22

Wire rods 13,881 19,037 12,237 15,056 21,907 25,323 23,717 19,168 25,261

Pellet 0 3,705 15,671 1,381 20,131 8,759 3,131 55,379 79,144


Exhibit 4:Quarterly segment-wise sales performanceSteel 109 139 162 157 180 200 208 236 275

Ferro Alloys 105 92 79 89 90 93 128 110 90

Others 15 15 14 7 16 10 10 7 8

Less: Intersegment (15) (2) (1) (1) 1 2 (5) (1) (1)


Exhibit 5:Quarterly segment-wise EBIT performanceSteel 11 18 22 24 29 53 27 36 55

Ferro Alloys 9 6 7 10 5 9 33 19 11


Revenue growth driven by higher steel sales

During 3QFY2013, SEMLs net sales grew by 29.9% yoy to `370cr driven by

healthy performance from steel business (+52.7% yoy to `275cr). Ferro alloy sales

volumes were down by 13.5% yoy to 14,014 tonne but the realizations improved

by 19.0% yoy to `64,521/tonne. However, billets sales volume increased by

215.7% yoy to 6,522 tonne; pellet sales also increased significantly by 293.1% yoy

to 79,144 tonne.


4/12


January 28, 2013 4

Exhibit 6:Quarterly net sales trend


Healthy operating performance in 3QFY2013

Despite a 29.9% yoy growth in top-line, the EBITDA grew by only 10.7% yoy due to

lower realizations from the Steel segment. The EBITDA margin fell by 334bp yoy to

19.3%. The companys interest costs increased by 23.4% yoy to `18cr and the

other income was lower by 59.4% yoy to `4cr which led to the net profit falling by

3.3% yoy to `27cr.

Exhibit 7:Quarterly EBITDA trend


245 254 251

285

298

337 351

370

40.5

17.2

25.533.4

21.8

32.7

39.6

29.9

0

5

10

15

20

25

30

35

40

45

0

50

100

150

200

250300

350

400

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

(%)

(`cr)

Net sales (LHS) yoy change (RHS)

3137 35

65

73

58

72 71

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

4

QFY11

1

QFY12

2

QFY12

3

QFY12

4

QFY12

1

QFY13

2

QFY13

3

QFY13

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)


5/12


January 28, 2013 5

Exhibit 8:Adjusted net profit trend


Investment rationale

In the recent past, SEML has not

been able to procure iron ore from its captive mine at Rajnandgaon on account of

Naxal activity in the region. Although there is lack of clarity on the timeline for the

re-commencement of this mine, we believe commencement of production from the

mine should result in significant savings.

SEML plans to set up a greenfield power plant of

350MW at Raigarh in two phases. The company has already acquired over 250acres for the same. Although the public hearing is already complete, the consent to

establish it is pending yet. We have not factored the financial estimates from this

power plant in our forecast model as there are a few regulatory hurdles to be

cleared.

9

14

2328

37

20

28 27

0

2

4

6

8

10

12

14

0

5

10

15

20

25

30

35

40

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

(%)

(`cr)

Adj. Net profit(LHS) Adj. Net margin (RHS)


6/12


January 28, 2013 6

Outlook and valuation

We believe that SEML is well poised to benefit from a) backward integration into

coal and iron ore, b) commercial production of pellets and c) increased power and

ferro alloy production. Moreover, firm sponge iron and pellet prices should lead to

higher capacity utilization in FY2014, thereby leading to higher sales volumes.

Exhibit 9:EV/EBITDA

Source: Bloomberg, Angel Research

Exhibit 10:P/E band


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

Jan-1

3

(`

cr

)

4.0x 8.0x 12.0x 16.0x 20.0x

0

100

200

300

400

500

600

700

800

900

1,000

Apr-07

Jul-07

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

(`

)

3x 8x 13x 18x


7/12


January 28, 2013 7

Exhibit 11:P/BV band


Exhibit 12:Recommendation summary

Godawari 112 143 Buy 349 28 4.0 3.3 0.4 0.3 4.6 3.5 10.9 11.4 13.4 13.7

Prakash 47 62 Buy 637 32 3.5 2.9 0.3 0.3 3.7 2.8 10.2 11.1 8.7 10.1


Company Background

SEML is a Raipur-based steel and ferro alloy manufacturer. The products

manufactured by the company include sponge iron, steel billets, steel ingots, wire

rods, ferro alloys, iron ore pellets etc. The company has a captive thermal coal

mine for manufacturing sponge iron. It also has several (non-operational currently)

iron ore and coal mines which are under various stages of clearances.

0

100

200

300

400

500

600

700

Apr-07

Jul-07

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

(`)

0.5x 1.0x 1.5x 2.0x


8/12


January 28, 2013 8

Profit & Loss Statement (Standalone)

Gross sales 1,032 556 946 1,197 1,559 1,615

Less: Excise duty (83) (33) (71) (96) (117) (121)

Other operating income - - - - - -

% chg 51.8 (44.9) 67.4 25.7 31.1 3.6

Total Expenditure 726 446 758 963 1,168 1,208

Net Raw Materials 618 369 579 684 842 872

Other Mfg costs 91 58 148 238 275 285

Personnel 17 19 31 41 50 51

Other - - - - - -

% chg 32.4 (65.6) 52.7 17.4 99.2 4.2

(% of Net Sales) 23.5 14.7 13.4 12.5 19.0 19.1

Depreciation 28 39 58 73 65 69

% chg 33.4 (80.6) 56.9 7.8 225.5 3.8

(% of Net Sales) 20.6 7.3 6.8 5.8 14.5 14.5

Interest & other Charges 5 13 15 22 72 70

Other Income 4 7 20 22 20 23

(% of PBT) 1.9 22.4 31.0 34.0 12.6 13.3

Share in profit of Associates - - - - - 1.0

% chg 39.6 (83.3) 97.6 0.3 142.5 8.6

Extraordinary Inc/(Expense) (45) 45 6.5 - - -

Tax 26 14 21 13 52 56

(% of PBT) 17.4 18.1 29.8 20.0 33.0 33.0

Add: Share of earnings of asso. - - - - - -

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

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

% chg 38.7 (89.0) 133.3 19.4 103.1 8.6

(% of Net Sales) 17.7 3.5 4.9 4.7 7.3 7.6


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January 28, 2013 9

Balance Sheet (Standalone)

Equity Share Capital 34 34 36 36 36 36Reserves& Surplus 479 531 658 772 864 965

Share Warrants - - - - - -

Minority Interest - - - - - -

Total Loans 533 460 582 655 725 750

Other Long Term liabilities - - 1 2 2 2

Long Term Provisions - - 8 8 8 8

Deferred Tax Liability 28 29 36 50 50 50

Gross Block 498 612 926 1,030 1,170 1,310

Less: Acc. Depreciation 147 185 240 299 364 432

Capital Work-in-Progress 355 373 126 111 86 76

Goodwill - - - - - -

Long term loans and adv. 111 188 188 188

Other non-current assets 1 1 1 1

Current Assets 352 282 406 456 553 620

Cash 35 25 2 1 14 68

Loans & Advances 199 91 99 159 159 159

Other 118 166 305 296 354 367

Current liabilities 57 96 161 179 164 166

Mis. Exp. not written off - - - - - -


10/12


January 28, 2013 10

Cash Flow statement (Standalone)

Profit before tax 149 77 71 104 156 170

Depreciation 28 39 58 63 65 69

Change in Working Capital (1) 33 (183) 62 (99) (10)

Less: Other income 47 (7.7) 5.8 13.6 - -

Direct taxes paid 22 16 10 16 52 56

(Inc.)/Dec. in Fixed Assets (234) (133) (80) (95) (115) (130)

(Inc.)/Dec. in Investments (52) 6 (76) (56.2) - -

(Inc.)/Dec. in loans and advances - - - - - -

Other income (73) 72 (35) 74.1 - -

Issue of Equity - - 92 - - -Inc./(Dec.) in loans 94 (36) (9) (81) 70 25

Dividend Paid (Incl. Tax) 12 12 12 12 13 13

Others (15) 14 29 57 - -

Inc./(Dec.) in Cash (61) 9 (23) (1) 13 54


11/12


January 28, 2013 11

Key Ratios (Standalone)

P/E (on FDEPS) 2.7 24.0 10.9 9.1 4.5 4.1

P/CEPS 2.3 7.8 4.6 3.8 2.8 2.6

P/BV 0.9 0.8 0.7 0.6 0.5 0.5

Dividend yield (%) 2.3 2.3 2.3 2.3 2.3 2.3

EV/Sales 0.9 1.6 1.0 0.8 0.7 0.6

EV/EBITDA 3.9 10.6 7.7 6.6 3.5 3.3

EV/Total Assets 0.8 0.8 0.7 0.6 0.6 0.5

EPS (Basic) 49.4 5.4 12.0 14.4 29.2 31.7

EPS (fully diluted) 49.0 5.4 12.0 14.4 29.2 31.7

Cash EPS 57.6 16.8 28.1 34.8 47.3 50.8DPS 3.0 3.0 3.0 3.0 3.0 3.0

Book Value 150.8 165.8 193.5 225.4 251.1 279.3

EBIT margin 20.6 7.3 6.8 5.8 14.5 14.5

Tax retention ratio (%) 82.6 81.9 70.2 80.0 67.0 67.0

Asset turnover (x) 1.2 0.5 0.8 0.9 1.0 1.0

RoIC (Post-tax) 20.2 3.2 3.9 4.1 10.1 9.7

Cost of Debt (Post Tax) 0.9 2.1 2.0 2.8 7.0 6.4

Leverage (x) 0.8 0.7 0.6 0.5 0.6 0.5

Operating RoE 36.3 4.0 5.1 4.9 11.8 11.3

RoCE (Pre-tax) 21.4 3.6 5.0 4.5 13.0 12.4

Angel RoIC (Pre-tax) 24.5 3.9 5.6 5.2 15.1 14.5

RoE 26.9 11.7 7.9 6.9 12.2 11.9

Asset Turnover (Gross Block) 2.3 0.9 1.1 1.1 1.3 1.2

Inventory (days) 38 106 108 75 75 75

Receivables (days) 7 10 18 14 14 14

Payables (days) 3 40 32 32 32 32

WC cycle (ex-cash) (days) 47 80 74 70 59 70

Net debt to equity 0.8 0.7 0.6 0.5 0.6 0.5

Net debt to EBITDA 1.9 4.8 3.7 3.2 1.8 1.6

Interest Coverage (EBIT / Int.) 42.5 3.0 3.9 3.0 2.9 3.1


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January 28 2013 12

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

This 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

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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

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

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources 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 thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

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Disclosure of Interest Statement Sarda Energy

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

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

sarda energy, 30th january 2013

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