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Electrosteel Castings Ltd: At inflection point

India Infoline Research Team / 10:57 , Jan 08, 2013

CMP Rs25.8
 

We met the management of Electrosteel Castings Ltd (ECL) and also visited its facilities in Kolkata and Jharkhand. ECL is engaged in manufacturing Ductile Iron and Cast Iron Pipes for water supply and sewerage systems. ECL, through its associate company, Electrosteel Steel Ltd (ESL), is setting up a 2.5mtpa integrated steel plant in Jharkhand. We visited ECL’s Khardah plant in Kolkata and coking coal mine in Jharkhand and ESL’s upcoming steel plant in Bokaro. At the Khardah plant, the company manufacturers DI pipe using induction arc furnace. ECL has started open cast mining at its coking coal mine in Parbatpur and is setting up equipment to start underground mining. The commissioning of the steel plant under ESL has been delayed and is witnessing some cost overrun. The plant is based on Chinese technology and commissioning would be done in a phased manner starting Q4 FY13.

Raw material integration remains the key for ECL
ECL has a 0.29mtpa Ductile Iron pipe plant at Khardah and an auxiliary unit in Haldia.  In the near term, value creation for the company is expected to come from its backward integration. The operations at coking coal mine at Parbatpur have started and is expected to ramp up over the next one year. The company expects to mine 60K tons of coking coal in FY13 and 0.4mn tons in FY14E. For its iron ore requirement, the company has been allotted the Kodolibad mine in Jharkhand with reserves of 91mn tons. The management expects to get the Stage II clearance by FY14 and start operations by FY15E.

ESL plant to ramp up in FY14E
ESL is setting up a 2.51mtpa integrated steel plant at Bokaro, Jharkhand. The project is strategically located near the iron ore mines and the coking coal mine of ECL. ESL has already started commercial production at one of the three blast furnaces, 2 batteries of the total 4 coke ovens, 50% of 2.39mtpa sinter plant, 0.6mtpa wire rods and 0.85mtpa rebars/TMT plants. The Steel Melting Shop (SMS) and the slab caster are expected to start commercial production in Q4 FY13. The management expects FY14 production to be ~1.5mn tons on the back of a ramp up in new capacities. 

Financial summary

Y/e 31 Mar (Rs m) FY09 FY10 FY11 FY12
Revenues 19,472 15,808 18,707 21,017
yoy growth (%) 35.3 (18.8) 18.3 12.4
Operating profit 2,638 3,004 2,699 1,047
OPM (%) 13.5 19.0 14.4 5.0
Pre-exceptional PAT 1,211 2,062 1,620 272
Reported PAT 1,353 2,342 1,796   (270)
yoy growth (%) 144.5 73.1 (23.3) -
Adj. EPS (Rs) 4.2 6.3 5.0 0.8
P/E (x) 6.1 4.1 5.2 31.0
EV/EBITDA (x) 6.8 6.1 8.2 23.8
Debt/Equity (x) 0.8 0.8 0.9 1.1
RoE (%) 9.6 13.8 9.6 1.6
RoCE (%) 12.8 13.2 9.7 3.5
Source: Company, India Infoline Research