Higher realization drives top-line growth: For 2QFY2012, PIL’s net sales grew by
8.8% yoy to `458cr mainly on account of higher realization across product
categories, partially offset by the decline in sales volumes. Gross realization of
basic steel and wire rods increased by 26.1% yoy each. Basic steel sales volumes
increased by 55.1% yoy to 27,923 tonnes, while wire rod sales volumes
decreased by 28.9% yoy to 78,969 tonnes in 2QFY2012.
High input costs dents PIL’s profitability: Raw-material costs increased by 21.8%
yoy to `306cr on the back of increased input costs, mainly iron ore.
Consequently, EBITDA margin slipped by 483bp yoy to 16.8% and EBITDA
decreased by 15.5% yoy to `77cr. Interest expenses grew by 573.0% yoy to
`2cr. Hence, net profit decreased by 22.7% yoy to `55cr in 2QFY2012.
125MW power plant delayed again: PIL has delayed the commissioning of the
first 125MW unit (5x25MW) to 4QFY2012 (earlier December 2011). On account
of slow-moving regulatory hurdles, the company’s Fatehpur coal mine could take
longer time than the company’s anticipation.
Outlook and valuation: While PIL has slowed down its power expansion plans, we
expect PIL’s EBITDA to witness strong growth once the benefits of increased
capacities of sponge iron and power commence production. PIL is currently
trading at inexpensive valuations of 3.0x and 2.6x FY2012E and FY2013E
EV/EBITDA, respectively. On P/B basis, it is trading at 0.3x each on FY2012E and
FY2013E, respectively. We maintain our Buy recommendation on the stock with a
revised target price of `61, valuing the stock at 2.9x FY2013E EV/EBITDA.
8.8% yoy to `458cr mainly on account of higher realization across product
categories, partially offset by the decline in sales volumes. Gross realization of
basic steel and wire rods increased by 26.1% yoy each. Basic steel sales volumes
increased by 55.1% yoy to 27,923 tonnes, while wire rod sales volumes
decreased by 28.9% yoy to 78,969 tonnes in 2QFY2012.
High input costs dents PIL’s profitability: Raw-material costs increased by 21.8%
yoy to `306cr on the back of increased input costs, mainly iron ore.
Consequently, EBITDA margin slipped by 483bp yoy to 16.8% and EBITDA
decreased by 15.5% yoy to `77cr. Interest expenses grew by 573.0% yoy to
`2cr. Hence, net profit decreased by 22.7% yoy to `55cr in 2QFY2012.
125MW power plant delayed again: PIL has delayed the commissioning of the
first 125MW unit (5x25MW) to 4QFY2012 (earlier December 2011). On account
of slow-moving regulatory hurdles, the company’s Fatehpur coal mine could take
longer time than the company’s anticipation.
Outlook and valuation: While PIL has slowed down its power expansion plans, we
expect PIL’s EBITDA to witness strong growth once the benefits of increased
capacities of sponge iron and power commence production. PIL is currently
trading at inexpensive valuations of 3.0x and 2.6x FY2012E and FY2013E
EV/EBITDA, respectively. On P/B basis, it is trading at 0.3x each on FY2012E and
FY2013E, respectively. We maintain our Buy recommendation on the stock with a
revised target price of `61, valuing the stock at 2.9x FY2013E EV/EBITDA.
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