Reduce Visa Steel; target of Rs 47: Arihant capital markets

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Reduce Visa Steel; target of Rs 47: Arihant capital markets

Arihant capital markets is bearish on Visa Steel and has recommended reduce rating on the stock with a target of Rs 47 in its February, 2012 research report.

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Arihant capital markets is bearish on Visa Steel and has recommended reduce rating on the stock with a target of Rs 47 in its February, 2012 research report.

"Visa Steel reported 3QFY12 numbers those were in line with our estimates. Net sales during the quarter jumped 11% yoy and 56% qoq to Rs 384cr largely due to increased volumes of met coke, Sponge iron, Ferro chrome and higher proportion of sale of trading goods as its core operations got impacted due to raw material side constraints in Orissa. In terms of realisations, DRI, Ferrochrome and billet realisation were strong while that of pig iron and Met coke declined sequentially largely on account of fall on coking coal prices."

"Visa's EBITDA margin continues to decline on account of lower sales volumes and realisations. Raw material cost incidence though was higher yoy at 56% (39%), it dropped significantly sequentially from 78%, implying fall in raw material prices. Effectively, EBITDA margins came in at 0.8% compared to 14% last year and 4.3% during 2QFY12.   Visa reported net loss of ~ Rs 39cr against Rs 10.3cr profit during last year. Apart from lower operating margins; higher interest cost (up 60% yoy) and forex loss of Rs33.3cr has impacted the profitability."

"Visa's steel has completed 0.5mn tonne expansion, however, given the current global macroeconomic uncertainties and sluggish demand outlook in domestic market, full benefit of expansion is unlikely to accrue over FY12E and expect utilisation levels to gradually ramp up in FY13. Going forward, we expect margin pressure to ease out as raw material prices have started cooling down. We have valued Visa Steel at 4.5x FY13E EBITDA and have come out with a fair value of Rs 47 per share. At CMP of Rs 58, the stock is trading at EV/EBITDA(x) and P/E(x) of 5.1x and 8.9x its FY13E EBITDA and EPS respectively, which we believe is at premium to its peers. We recommend Reduce on the stock," says Arihant capital markets research report.      

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