Buy Visa Steel; target of Rs 75: Unicon Investment

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Buy Visa Steel; target of Rs 75: Unicon Investment

Unicon Investment is bullish on Visa Steel and has recommended buy rating on the stock with a target of Rs 75 in its August 6, 2011 research report.

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Unicon Investment is bullish on Visa Steel and has recommended buy rating on the stock with a target of Rs 75 in its August 6, 2011 research report.

"Visa Steel Ltd (VISA) has declared its Q1FY12 consolidated results where the company has registered a healthy sales growth of 65.6% YoY to INR 3652 mn. The robust jump in the top line was due to the higher sales volume and the better realisation at its product line. While on Sequential basis the top line has declined by 13.9%. EBITDA during the quarter increased by 10.6% YoY to INR 448 mn where as on sequential basis EBITDA declined by 40.2%. The EBITDA margin has contracted by 571 bps to 12.2% from 17.9% in the corresponding quarter previous year. On sequential basis, EBITDA margin declined by 525 bps."

"Contraction in the EBITDA margin was due to the higher raw material cost during the quarter. Iron ore and coking coal prices continue to remain firm putting pressure on the EBITDA margin going forward. To offset the above the company has started focusing high end products (like steel billets and rolled products) to get better realisation with higher margin. The company started its commercial production of billets in the quarter under review and is expected to commercialise its rolled mill from Q2FY12. Net profit during the quarter has shown a growth of 33% on YoY to INR 101 mn while on QoQ the PAT has halved (down 56%). PAT margin has declined by minor 61 bps to 2.8% during the quarter from 3.4% in corresponding quarter previous year. On sequential basis profit margin has contracted by 262 bps."

"VISA's initiation for the forward integration in the product line would expect to add value to the top line as well as the bottom-line. Addition of high end products would enable the company to fetch higher realisation compared to its earlier products line (like sponge iron & pig iron). In addition to this VISA BAO JV is on its schedule and expected to get commercialize from FY12. At CMP the stock is available at EV/EBITDA of 3.5x its FY13eand PE multiple of 3.7x of its FY13e earnings. Considering the forward integration in product line which is on stream and expected to add value from Q2FY12 to its bottom line, we recommend BUY on the stock and maintain our price target of INR 75," says Unicon Investment research report.

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To read the full report click on the attachment