Buy MSP Steel; target of Rs 87: Networth Stock Broking

“MSP Steel & Power Ltd (MSP), a part of MSP Group, is a medium size integrated steel company based in East India. It is engaged in manufacturing of pellet, sponge iron, long products and captive power generation. In longs segment, it offers a wide range of products like billets, TMT, structural, angles, channel, plates and beam. The company has its making facilities in Jamgaon, Raigarh in Chhattisgarh. We expect the company to report a significant increase in the topline through volume growth and in bottomline through cost savings & backward integration. Currently, the stock is trading at 6.5X and 3.8X on FY11E & FY12E EPS of Rs 10.3 & Rs 17.6 respectively. We recommend BUY at current levels with FY12 price target of Rs 87, an upside of 28%."

"MSP is well poised to take advantage of the growing steel demand in the country. The company has undertaken a massive phase wise expansion plan focus being on strengthening backward integration by increasing the production capacity for sponge iron, pellets and power. Going forward, this expansion would drive volumes."

"The quantum of the above mentioned capex is Rs 814 crore of which Rs 350 crore has already been spent. The capex is being funded through a mix of debt and internal accruals and preference shares (issued to promoters) in the ratio of 2:1 (the equity portion being internal accruals and preference shares),” says Networth Stock Broking research report.

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