Buy Monnet Ispat; target of Rs 196: Angel Broking

Angel Broking's report on Monnet Ispat (MIL)

"MIL's net sales declined by 8.3 percent yoy to Rs 501cr, mainly due to lower realizations from steel and sponge iron segments, which although was partially offset by higher volumes. The sponge iron and steel realisations declined by 13.1 percent and 16.1 percent yoy to Rs 18,502/tonne and Rs 27,973/tonne respectively. Ferro alloys and steel sales volumes however, increased by 151.2 percent and 26.6 percent yoy to 4,296 tonne and 26,714 tonne, respectively." "The company's raw material costs increased to 60.7 percent of net sales compared to 59.0 percent in 2QFY2013. This led to the EBITDA declining by 11.4 percent yoy to Rs 124cr, while the EBITDA margin contracted by 85bp yoy to 24.7 percent. Interest expenses grew by 14.8 percent yoy to Rs 34cr while the tax rate also grew to 24.6 percent compared to 23.4 percent in 2QFY2013. Consequently, the net profit decreased by 15.6 percent yoy to Rs 60cr." Outlook and valuation: "MIL is on the verge of a massive expansion in its steel business. However, given the weak steel demand in India, the company is likely to slow down the pace of its steel plant expansion. The stock performance will be determined by the timely ramp-up of the 1.5mtpa steel plant and unlocking of value in Monnet Power, which is implementing the 1,050MW power project. Although there have been delays in the commencement of these projects, most of these projects would be backed by captive resources, thus ensuring robust return ratios. Hence, we recommend Buy on the stock with a SOTP-based target price of Rs 196," says Angel Broking research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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