Reduce Bhushan Steel; target of Rs 316: Angel Broking

“Bhushan Steel (BSL) net sales increased 23.9% yoy to Rs2,407cr on account of increase in both realizations and sales volumes. Flat products sales volumes grew by 17.0% yoy to 429,883 tonnes and flat product average realization increased by 27.9% yoy to Rs47,213/tonne.”

“EBITDA grew 34.7% yoy to Rs724cr on account of increase in net sales and EBITDA margin expanded 241bp yoy to 30.1%. However, interest expenses grew 124.6% yoy to Rs229cr and depreciation expenses grew 165.8% yoy to Rs152cr which resulted in PAT declining by 1.3% yoy to Rs277cr. BSL’s board has approved raising of Rs700cr via rights issue. The company also aims to raise further equity of US$400-500mn to deleverage its balance sheet as and when equity market conditions improve. As of December 31, 2011, BSL had debt of Rs20,000cr. BSL’s Phase III expansion in Odisha is running on track; it expects to complete the expansion project by October 2012.”

“We expect BSL to complete phase III expansion during 4QFY2012, the benefits of which will be witnessed during FY2014-15. However, we remain concerned over its high leverage levels. Further, at the CMP, the stock is trading at 9.3x FY2012E and 9.1x FY2013E EV/EBITDA, a significant premium over its peers. Hence, we recommend a Reduce rating on the stock with a target price of Rs316 (valuing the stock at 8.8x FY2013 EV/EBITDA),” says Angel Broking research report. 

Institutional holding more than 40% in Indian cos

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