Sarda Energy 4Q FY 2013

7/28/2019 Sarda Energy 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly Performance (Standalone)Particulars (` cr) 4QFY13 4QFY12 % chg (yoy) 3QFY13 % chg (qoq)Net sales 315 298 5.8 370 (14.8)EBITDA 71 73 (3.9) 71 (1.2)

EBITDA margin (%) 22.4 24.7 (227)bp 19.3 309bp

Adj. net profit 50 37 34.0 27 84.8Source: Company, Angel Research

For 4QFY2013, Sarda Energy (SEML) reported a net sales sales growth of 5.8%

yoy and a PAT growth of 34.0% yoy due to lower interest costs. We maintain ourBuy rating on the stock.Revenue growth driven by higher steel sales:During 4QFY2013, SEMLs net salesgrew by 5.8% yoy to `315cr driven by healthy performance from steel business

(+9.0% yoy to `219cr). Ferro alloy sales volumes were down by 14.1% yoy to

15,322 tonne but the realizations improved by 11.9% yoy to `58,380/tonne.

However, billets sales volume increased by 7.9% yoy to 3,992 tonne; pellet sales

also increased significantly by 467.2% yoy to 49,685 tonne.

EBITDA decline on higher staff costs: Despite a 5.8% yoy growth in top-line, theEBITDA declined by 3.9% yoy due to higher staff costs and other expenditure. The

EBITDA margin fell by 227bp yoy to 22.4%. The companys interest costs declined

by 77.4% yoy to `8cr and it got a tax benefit of `1cr which led to the net profit

rising by 34.0% yoy to `50cr.

Outlook and valuation: We believe that SEML is well poised to benefit from a)backward integration into coal and iron ore, b) commercial production of pellets

and c) increased power and ferro alloy production. Moreover, we expect

utilization levels to improve beginning 2HFY2014, thereby leading to higher sales

volumes, mianly during FY2015. We recommend Buy on the stock with a targetprice of `128, valuing the stock at 2.5x FY2015E EV/EBITDA.Key financials (Standalone)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 1,089 1,373 1,418 1,491% chg 24.5 26.0 3.3 5.2

Net profit 114 125 123 145% chg 165.2 8.9 (1.0) 17.4

FDEPS (`) 31.9 34.7 34.4 40.4OPM (%) 16.4 19.8 20.3 21.6

P/E (x) 3.4 3.1 3.1 2.7

P/BV (x) 0.5 0.4 0.4 0.3

RoE (%) 15.2 14.4 12.6 13.2

RoCE (%) 8.1 12.8 12.2 12.7

EV/Sales (x) 0.8 0.6 0.6 0.5

EV/EBITDA (x) 4.6 3.2 2.9 2.3

Source: Company, Angel Research

BUYCMP `107

Target Price `128

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr) 512

Bloomberg Code SEML@IN

Shareholding Pattern (%)

Promoters 66.5

MF / Banks / Indian Fls 7.2

FII / NRIs / OCBs 6.3Indian Public / Others 20.0

Abs. (%) 3m 1yr 3yr

Sensex 6.1 22.3 19.1

SEML 3.7 (19.4) (57.9)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Steel

10

20,148

6,104

SAEM.BO

383

1.2

156/90

21,140

Bhavesh ChauhanTel: 022- 39357600 Ext: 6821

E-mail: [email protected]

Vinay RachhTel: 022- 39357600 Ext: 6841

[email protected]

Sarda Energy and MineralsPerformance highlights

4QFY2013 Result Update | Steel

May 29, 2013


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Sarda Energy| 4QFY2013 Result Update

May 29, 2013 2

Exhibit 1:4QFY2013 Performance (Standalone)(` cr) 4QFY13 4QFY12 yoy % 3QFY13 qoq % FY2013 FY2012 yoy %Net sales 315 298 5.8 370 (14.8) 1,384 1,100 25.8Raw material 164 164 (0.0) 220 (25.6) 799 642 24.4% of net sales 52.0 55.1 59.5 57.7 58.4

Staff cost 14 11 21.0 12 14.5 50 41 21.4

% of net sales 4.4 3.9 3.3 3.6 3.7

Other expenditure 69 53 29.5 69 0.4 263 239 10.2

% of net sales 21.8 17.9 18.5 19.0 21.7

Total expenditure 247 229 7.9 301 (18.1) 1,112 922 20.6

% of net sales 78.3 76.8 81.3 80.3 83.8

Operating profit 69 69 (1.0) 69 (0.8) 261 167 56.0OPM (%) 21.7 23.2 18.7 18.9 15.2

EBIDTA 71 73 (3.9) 71 (1.2) 272 178 52.6EBITDA margins (%) 22.4 24.7 19.3 19.7 16.2

Interest 8 34 (77.4) 18 (57.7) 63 70 (10.2)

Depreciation 16 17 (4.6) 16 (1.7) 64 63 1.3

Other income 2 39 (95.5) 4 (50.9) 15 59 (74.5)

Exceptional items - - - - - - - -

Profit before tax 49 61 (20.9) 40 20.1 160 104 53.7% of net sales 15.4 20.6 10.9 11.6 9.5

Tax (1) 24 (105.0) 13 (109.0) 35 (10) (443.3)

% of PBT - 39.5 33.3 22.2 (9.9)

Profit after tax 50 37 34.0 27 84.8 125 114 8.9Adj.Profit after tax 50 37 34.0 27 84.8 125 114 8.9% of net sales 15.8 12.5 7.3 9.0 10.4


Exhibit 2:Quarterly production volume(tonnes) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Sponge iron 57,995 61,914 56,886 60,238 66,382 68,811 72,667 66,861 60,263

Billets+ ingots 28,133 23,425 24,999 16,433 29,812 30,093 24,243 29,184 28,779

Ferro alloys 14,580 13,876 15,878 17,798 16,819 16,035 17,068 12,311 17,481

Power (mn units) 148 140 132 155 149 145 143 128 149

Pellet 54,464 56,144 71,497 126,899 93,062 34,081 126,973 146,663 127,581

Wire rods 23,355 9,979 21,186 22,254 32,297 29,148 27,587 29,746 29,016



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May 29, 2013 3

Exhibit 3:Quarterly sales volume(tonnes) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Sponge Iron 30,579 39,356 36,552 35,780 36,996 44,331 44,331 38,082 30,947

Billets+ingots 5,611 9,716 9,798 2,066 3,701 6,619 4,256 6,522 3,992Ferro alloys 16,016 14,622 16,438 16,197 17,837 17,928 17,248 14,014 15,322

Power (mn units) 42 40 20 42 25 28 21 22 27

Wire rods 19,037 12,237 15,056 21,907 25,323 23,717 19,168 25,261 23,254

Pellet 3,705 15,671 1,381 20,131 8,759 3,131 55,379 79,144 49,685


Exhibit 4:Quarterly segment-wise sales performance(` cr) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Steel 139 162 157 180 200 208 236 275 219

Ferro Alloys 92 79 89 90 93 128 110 90 89

Others 15 14 7 16 10 10 7 8 10

Less: Intersegment (2) (1) (1) 1 2 (5) (1) (1) (1)

Net sales 245 254 251 287 305 341 353 372 317Source: Company, Angel Research

Exhibit 5:Quarterly segment-wise EBIT performance(` cr) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13Steel 18 22 24 29 53 27 36 55 48

Ferro Alloys 6 7 10 5 9 33 19 11 14

EBIT 24 29 34 34 61 60 54 66 62Source: Company, Angel Research

Revenue growth driven by higher steel sales

During 4QFY2013, SEMLs net sales grew by5.8% yoy to `315cr driven by healthy

performance from steel business (+9.0% yoy to `219cr). Ferro alloy sales volumes

were down by 14.1% yoy to 15,322 tonne but the realizations improved by 11.9%

yoy to `58,380/tonne. However, billets sales volume increased by 7.9% yoy to

3,992 tonne; pellet sales also increased significantly by 467.2% yoy to 49,685

tonne.


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May 29, 2013 4

Exhibit 6:Quarterly net sales trend


Mixed operating performance in 4QFY2013

Despite a 5.8% yoy growth in top-line, the EBITDA declined by 3.9% yoy due to

higher staff costs and other expenditure. The EBITDA margin fell by 227bp yoy to

22.4%. The companys interest costs declined by 77.4% yoy to `8cr and it got a tax

benefit of `1cr which led to the net profit rising by 34.0% yoy to `50cr.

Exhibit 7:Quarterly EBITDA trend


254 251

285 298337

351 370

315

0

5

10

15

20

25

30

35

40

45

0

50

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250300

350

400

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

(%)

(`cr)

Net sales (LHS) yoy change (RHS)

37 35

65

73

58

72 71 71

0

5

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15

20

25

30

0

10

20

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80

1QFY12

2QFY12

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4QFY13

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)


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May 29, 2013 5

Exhibit 8:Adjusted net profit trend


Investment rationale

Restart of captive iron ore mine to lower costs: In the recent past, SEML has notbeen able to procure iron ore from its captive mine at Rajnandgaon on account of

Naxal activity in the region. Although there is lack of clarity on the timeline for the

re-commencement of this mine, we believe commencement of production from the

mine should result in significant savings.

Power capacity to increase: SEML plans to set up a greenfield power plant of350MW at Raigarh in two phases. The company has already acquired over 250acres for the same. Although the public hearing is already complete, the consent to

establish it is pending yet. We have not factored the financial estimates from this

power plant in our forecast model as there are a few regulatory hurdles to be

cleared.

14

2328

37

20

28 27

50

0

2

4

6

8

10

1214

16

18

0

10

20

30

40

50

60

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

(%)

(`cr)

Adj. Net profit(LHS) Adj. Net margin (RHS)


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May 29, 2013 6

Outlook and valuation

We believe that SEML is well poised to benefit from a) backward integration into

coal and iron ore, b) commercial production of pellets and c) increased power and

ferro alloy production. Moreover, we expect utilization levels to improve beginning

2HFY2014, thereby leading to higher sales volumes, mianly during FY2015. Werecommend Buy on the stock with a target price of `128, valuing the stock at 2.5xFY2015E EV/EBITDA.Exhibit 9:EV/EBITDA

Source: Bloomberg, Angel Research

Exhibit 10:P/E band


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan-0

7

Apr-07

Jul-07

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Jan-0

8

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Jan-0

9

Apr-09

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0

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Jan-1

1

Apr-11

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Jan-1

2

Apr-12

Jul-12

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Jan-1

3

Apr-13

(`

cr)

4.0x 8.0x 12.0x 16.0x 20.0x

0

100

200

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500

600

700

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

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9

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Apr-11

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2

Apr-12

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Jan-1

3

Apr-13

(`)

0.5x 1.0x 1.5x 2.0x


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May 29, 2013 7

Exhibit 11:P/BV band


Exhibit 12:Recommendation summaryCompanies CMP Target price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15EGodawari 85 118 Buy 269 39 2.5 1.9 0.3 0.2 3.8 2.9 11.2 13.1 11.6 12.5

Prakash 36 45 Buy 484 24 3.7 3.5 0.2 0.2 3.6 3.3 6.5 6.5 6.4 6.5

SEML 107 128 Buy 465 20 3.1 2.7 0.4 0.3 2.9 2.3 12.6 13.2 12.2 12.7Source: Company, Angel Research

Company BackgroundSEML is a Raipur-based steel and ferro alloy manufacturer. The products

manufactured by the company include sponge iron, steel billets, steel ingots, wire

rods, ferro alloys, iron ore pellets etc. The company has a captive thermal coal

mine for manufacturing sponge iron. It also has several (non-operational currently)

iron ore and coal mines which are under various stages of clearances.

0

100

200

300

400

500

600

700800

900

1,000

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

Jan-1

3

Apr-13

(`

)

3x 8x 13x 18x


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May 29, 2013 8

Profit & Loss Statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 556 946 1,186 1,513 1,533 1,612

Less: Excise duty (33) (71) (96) (140) (115) (121)Net Sales 523 875 1,089 1,373 1,418 1,491Other operating income - - 10.8 10.9 - -

Total operating income 523 875 1,100 1,384 1,418 1,491% chg (44.9) 67.4 25.7 25.8 2.5 5.2

Total Expenditure 446 758 922 1,112 1,131 1,170

Net Raw Materials 369 579 642 799 811 834

Other Mfg costs 58 148 239 263 271 285

Personnel 19 31 41 50 48 51

Other - - - - - -

EBITDA 77 117 178 272 288 322% chg (65.6) 52.7 52.2 52.6 5.7 12.0

(% of Net Sales) 14.7 13.4 16.4 19.8 20.3 21.6

Depreciation 39 58 63 64 69 75

EBIT 38 60 115 208 219 247% chg (80.6) 56.9 93.3 80.8 5.2 12.9

(% of Net Sales) 7.3 6.8 10.6 15.2 15.4 16.6

Interest & other Charges 13 15 70 63 72 74

Other Income 7 20 59 15 17 20

(% of PBT) 22.4 31.0 57.0 9.4 10.6 10.4

Share in profit of Associates - - - - 1.0 1.0

Recurring PBT 32 64 104 160 164 193% chg (83.3) 97.6 62.1 53.7 2.7 17.4

Extraordinary Inc/(Expense) 45 6.5 - - - -

PBT (reported) 77 71 104 160 164 193Tax 14 21 (10) 35 41 48

(% of PBT) 18.1 29.8 (9.9) 22.2 25.0 25.0

PAT (reported) 63 50 114 125 123 145Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

Extraordinary Expense/(Inc.) - - - - - -

PAT after MI (reported) 63 50 114 125 123 145ADJ. PAT 18 43 114 125 123 145% chg (89.0) 133.3 165.2 8.9 (1.0) 17.4

(% of Net Sales) 3.5 4.9 10.5 9.1 8.7 9.7

Basic EPS (`) 5.4 12.0 31.9 34.7 34.4 40.4Fully Diluted EPS ( ) 5.4 12.0 31.9 34.7 34.4 40.4


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May 29, 2013 9

Balance Sheet (Standalone)

Y/E March (` cr.) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 34 36 36 36 36 36Reserves& Surplus 531 658 772 884 995 1,127

Shareholders Funds 565 694 808 920 1,031 1,163Share Warrants - - - - - -

Minority Interest - - - - - -

Total Loans 460 582 655 745 770 795

Other Long Term liabilities - 1 2 2 2 2

Long Term Provisions - 8 8 8 8 8

Deferred Tax Liability 29 36 50 50 50 50

Total Liabilities 1,053 1,320 1,523 1,725 1,860 2,017APPLICATION OF FUNDSGross Block 612 926 1,030 1,170 1,310 1,400

Less: Acc. Depreciation 185 240 299 363 431 506

Net Block 427 686 732 808 879 894Capital Work-in-Progress 373 126 111 86 76 66

Goodwill - - - - - -

Investments 66 152 213 213 213 213Long term loans and adv. - 111 188 188 188 188Other non-current assets - 1 1 1 1 1Current Assets 282 406 456 584 659 813

Cash 25 2 1 38 101 236

Loans & Advances 91 99 159 159 159 159

Other 166 305 296 361 373 392

Current liabilities 96 161 179 155 156 158

Net Current Assets 186 244 277 428 503 654Mis. Exp. not written off - - - - - -

Total Assets 1,053 1,320 1,523 1,725 1,860 2,017


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May 29, 2013 10

Cash Flow statement (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 77 71 104 160 164 193

Depreciation 39 58 63 64 69 75Change in Working Capital 33 (183) 62 (114) (11) (17)

Less: Other income (7.7) 5.8 13.6 - - -

Direct taxes paid 16 10 16 35 41 48

Cash Flow from Operations 126 (58) 227 75 181 202(Inc.)/Dec. in Fixed Assets (133) (80) (95) (115) (130) (80)

(Inc.)/Dec. in Investments 6 (76) (56.2) - - -

(Inc.)/Dec. in loans and adv.

Other income 72 (35) 74.1 - - -

Cash Flow from Investing (55) (191) (77) (115) (130) (80)Issue of Equity - 92 - - - -

Inc./(Dec.) in loans (36) (9) (81) 90 25 25

Dividend Paid (Incl. Tax) 12 12 12 13 13 13

Others 14 29 57 - - -

Cash Flow from Financing (61) 227 (151) 77 12 12Inc./(Dec.) in Cash 9 (23) (1) 37 63 134

Opening Cash balances 15 25 2 1 38 101Closing Cash balances 25 2 1 38 101 236


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May 29, 2013 11

Key Ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 19.7 8.9 3.4 3.1 3.1 2.7P/CEPS 6.4 3.8 2.2 2.0 2.0 1.7

P/BV 0.6 0.6 0.5 0.4 0.4 0.3

Dividend yield (%) 2.8 2.8 2.8 2.8 2.8 2.8

EV/Sales 1.4 0.9 0.8 0.6 0.6 0.5

EV/EBITDA 9.5 6.9 4.6 3.2 2.9 2.3

EV/Total Assets 0.7 0.6 0.5 0.5 0.5 0.4

Per Share Data (`)EPS (Basic) 5.4 12.0 31.9 34.7 34.4 40.4

EPS (fully diluted) 5.4 12.0 31.9 34.7 34.4 40.4

Cash EPS 16.8 28.1 49.6 52.6 53.5 61.2

DPS 3.0 3.0 3.0 3.0 3.0 3.0

Book Value 165.8 193.5 225.4 256.7 287.5 324.4

Dupont AnalysisEBIT margin 7.3 6.8 10.5 15.0 15.4 16.6

Tax retention ratio (%) 81.9 70.2 109.9 77.8 75.0 75.0

Asset turnover (x) 0.5 0.8 0.9 1.0 0.9 1.0

RoIC (Post-tax) 3.2 3.9 10.2 11.6 10.9 11.9

Cost of Debt (Post Tax) 2.1 2.0 12.5 7.0 7.1 7.1

Leverage (x) 0.7 0.6 0.5 0.5 0.4 0.3

Operating RoE 4.0 5.1 9.0 14.1 12.5 13.3

Returns (%)RoCE (Pre-tax) 3.6 5.0 8.1 12.8 12.2 12.7

Angel RoIC (Pre-tax) 3.9 5.6 9.3 15.0 14.5 15.9

RoE 11.7 7.9 15.2 14.4 12.6 13.2

Turnover ratios (x)Asset Turnover (Gross Block) 0.9 1.1 1.1 1.2 1.1 1.1

Inventory (days) 88 86 81 81 81 81

Receivables (days) 11 12 14 14 14 14

Payables (days) 22 28 30 30 30 30

WC cycle (ex-cash) (days) 147 84 87 89 102 100

Solvency ratios (x)Net debt to equity 0.7 0.6 0.5 0.5 0.4 0.3

Net debt to EBITDA 4.8 3.7 2.5 1.8 1.6 1.1

Interest Coverage (EBIT / Int.) 3.0 3.9 1.6 3.3 3.0 3.3


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M 29 2013 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Sarda Energy

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Documents

Sarda Energy 4Q FY 2013