Buy Visa Steel, target of Rs 85: PINC

PINC Research has maintained its buy rating on Visa Steel with a 12-month price target of Rs 85 in its April 24, 2008 research report. "In 9MFY08,Visa Steel (VSL) has reported revenues of Rs 4.2 billion and net profit of Rs 222 million. We expect revenues of Rs 5.9 billion and net profit of Rs 369 million in FY08. The sustained uptrend in ferro chrome prices is expected to provide a sharp revenue as well as earning kick off for VSL. For FY09 and FY10, we expect VSL to report revenues of Rs 14.6 billion and Rs 19.1 billion respectively (not factoring the special/stainless steel plant). These revenues should get transformed into net profits of Rs 1.4 billion and Rs 1.9 billion for the respective years."

"At the CMP of Rs 48, the stock trades at a P/E of 2.8x and an EV/EBDIT of 3x FY10E EPS of Rs 16.9. While realisations have spiked to absurd levels in ferro chrome, the same has also firmed up considerably for pig iron, met coke and sponge iron. While the same could result in strong scale up in revenues for VSL, there is a probability that raw material prices could also surge with a lag, though not commensurately. Despite these, we expect VSL to witness an expansion in OPM in the coming years due to its capacity scale up and strong backward integration into power plant and sponge iron for the special/stainless steel. As VSL will evolve as one of the lowest cost producers of special/steel segment post its capex (assuming raw material linkages do not go awry), there would be a high operating leverage in its business model, which the company would be able to effectively capitalise upon. Hence, we reiterate our ‘BUY’ recommendation with a 12-month price target of Rs 85," says PINC's research report.

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