MSP Steel: Delay in ramping up pellet capacity
CRISIL Research has come out with its report on MSP Steel & Power (MSP). According to the research firm, steel capacity expansion on is on track which is expected to come on stream in FY13-end.
March 08, 2013 / 13:36 IST
CRISIL Research has come out with its report on MSP Steel & Power (MSP). According to the research firm, steel capacity expansion on is on track which is expected to come on stream in FY13-end.
MSP's results were below CRISIL Research's expectations. Lower-than-expected capacity utilisation rate of the recently expanded iron ore pellet capacity and decline in power realisations led to the underperformance. Revenues grew 19% y-o-y and EBITDA margin improved 456 bps y-o-y to 19.8% following an increase in the contribution of high-margin iron ore pellet sales. However, high capital costs impacted earnings. We have lowered our earnings estimates for FY13 and FY14 to factor the underperformance and sluggish demand. We maintain the fundamental grade of 2/5.Revenue growth driven by capacity expansion and high realisations
Revenues grew 19% y-o-y (5% q-o-q) to Rs 2,081 mn largely driven by high iron ore pellet sales (Rs 293 mn in Q3FY13 compared to Rs 25 mn in Q3FY12 and Rs 259 mn in Q2FY13). MSP expanded its pellet capacity from 0.3 mn MTPA to 0.9 mn MTPA in Q1FY13, enabling it to sell excess pellets. It sold 42,167 MT pellets in Q3FY13 compared to 5,489 MT in Q3FY12. Further, iron ore price has increased significantly in the past one year due to supply constraints. Realisations increased 53% y-o-y to Rs 6,941/MT in Q3FY13 from Rs 4,543/MT in Q3FY12. Sales from sponge iron and steel increased 5% y-o-y (5% q-o-q) to Rs 1,548 mn driven by increase in realisations (blended realisation up 6% y-o-y and 2% q-o-q). However, power realisations declined 23% y-o-y and 38% q-o-q to Rs 2.3/unit due to low demand.Margins supported by pellet sales; high other expenses capped profitability
EBITDA margin improved 456 bps y-o-y (down 86 bps q-o-q) to 19.8% supported by highmargin pellet sales. MSP enjoyed 32% gross margin (average cost of Rs 5,960 and average selling price of Rs 8,775) in pellet sales in Q3FY13. The contribution to total revenues increased to 14% in Q3FY13 from 1% in Q3FY12. However, high other expenditure capped the improvement in profitability; the company incurred maintenance expenditure in the stabilisation of the pellet plant.Steel capacity expansion on track; expected to come on stream in FY13-end
Steel capacity expansion (from 0.14 mn MTPA to 0.27 mn MTPA) is on track. MSP has already spent Rs 1,560 mn out of the planned capex of Rs 1,700 mn and has started the trial runs.Equity infusion of Rs 1,200 mn to improve the balance sheet
MSP has allotted 20 mn shares at Rs 60 per share to the promoters and non-promoters on a preferential basis resulting in an equity infusion of Rs 1,200 mn. This will enable the company to service its financial obligations. It has a loan of Rs 8,405 mn as of December 2012 and debt repayment of ~Rs 700 mn due in FY14.Fair value maintained at Rs 39
We have rolled forward our valuation to FY15 and lowered our earnings estimates for FY13- FY14. Consequently, we continue to value MSP at Rs 39 per share (EV/EBITDA of 5x FY15E EBITDA). At the CMP of Rs 20, our valuation grade is 5/5.To read the full report click on the attachmentDisclaimer: 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.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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