CRISIL retains valuation grade of 5/5 to Electrosteel Cast

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CRISIL retains valuation grade of 5/5 to Electrosteel Cast

CRISIL Research has come out with its report on Electrosteel Castings. The research firm has maintained the fundamental grade of 3/5 to the company in its February 21, 2012 report.

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CRISIL Research has come out with its report on Electrosteel Castings . The research firm has maintained the fundamental grade of 3/5 to the company in its February 21, 2012 report.

Electrosteel Castings Ltd (Electrosteel) has received the "in principle" stage one clearance from the Ministry of Environment and Forests (MoEF) for its iron ore mines located at Kodolibad, West Singhbhum, Jharkhand. Considering the time required for securing additional approvals, the company expects to commence mining operations in the next ~9-10 months. Once fully operational, we expect significant cost benefits to accrue to the company, besides catering to the iron ore requirements of Electrosteel as well as its steel venture, Electrosteel Steel Ltd. We will revise our financial forecast post detailed interaction with the management. We maintain the fundamental grade of 3/5.

Details of the approval and mine
• This iron ore mine is an open cast mine and the company expects it to have higher grade of iron ore (~ 63% iron ore content) with minimal overburden (impurities associated with iron-ore). According to the company, ratio of lump and fines in this mine is also very good. Also, there are no land issues as the mine is located in a forest area which is uninhabited.

• The Kodolibad mine, which has received the stage one clearance from MoEF, was allotted to Electrosteel in 2006; it has geological reserves of 91.2 mn tonnes of iron ore. The clearance is subject to certain conditions like payment of NPV, transferring the compensatory afforestation land, payment towards eco development, submission of mining plan, submission of undertakings etc in favour of the forest department. According to the company, it will be able to fulfil these conditions within ~4 months and will submit the compliance report to the Divisional Forest Officer (DFO) as required. Post DFO approval, the report will be sent to the state head office which in turn will send it to the MoEF for the final clearance.

• Post the receipt of the final clearance, which the company expects in the next 6 months, the company will start development work around the mine; it expects to start mining iron ore in the next 9-10 months. It will take another ~6 months to ramp up mining operations to meet requirements of both Electrosteel Castings and Electrosteel Steel. The company expects to incur capex of Rs 3 bn for the development of this mine.

• Electrosteel's DI (ductile iron) pipes' plant in Khardah, West Bengal, is ~300 kms and the steel plant at Bokaro, Jharkhand is ~240 kms from the mine. The company plans to transport iron ore to these plants by rail and has already secured railway wagons and has already set up one railway siding. The development of another railway siding is underway.

Valuation: Current market price has strong upside
We maintain our fair value estimate at Rs 35 per share. However, the fair price would be revised post detailed interaction with the management.

Valuations: Current market price has strong upside
We continue to use the sum of the parts method to value Electrosteel and maintain our fair value of Rs 35 per share. Consequently, we retain the valuation grade of 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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