Q2 FY13 revenue of Rs25.5bn was high by 3.6% yoy, led by strong steel realisations. Steel sales volume of 0.54mn tons during the quarter was lower by 2.1% yoy and 9.8% qoq. Steel production volumes too were lower on a on a qoq basis. Production of HRC declined 16.2% qoq to 279,967 tons, lower than our estimate. Blended realisations for the company were marginally lower on a qoq basis against our expectation of a 2-3% decline. Blended realisations stood at Rs47,123/ton, 5.8% higher on a yoy basis.
Operating profit of Rs7.5bn was 3.9% higher on a yoy basis, but lower by 13.1% qoq. The increase in operating profir on a yoy basis was largely due to higher realisations. However, on a qoq basis, increase in conversion costs per ton led to lower operating profit. EBIDTA/ton which was Rs14,342/ton in Q1 FY13 declined to Rs13,824. The incline in margins was lower than our estiamte. Raw material costs per ton of saleable steel was marginally lower on a qoq basis. We expect this costs to increase in the near term led by stable iron ore prices in Orissa.
|Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Steel sales volume (Tons)||542,034||601,219||(9.8)||553,387||(2.1)|
|Blended realisations (Rs/ton)||47,123||47,259||(0.3)||44,550||5.8|
|RM cost per ton of steel (Rs/ton)||25,636||25,729||(0.4)||24,953||2.7|
|Conversion cost per ton of steel (Rs/ton)||7,664||7,189||6.6||6,567||16.7|
|EBIDTA per ton of steel (Rs/ton)||13,824||14,342||(3.6)||13,030||6.1|
Bhushan Steel’s structural growth story, driven by strong volume growth and backward integration is encouraging. Yet, we believe the upside from this has already been built in the price. At the CMP of Rs490, the company is trading at 10.8x FY13 EV/EBIDTA and 7.4x FY14 EV/EBIDTA, which is at a premium to its peers. Historically, premium valuation to peers was perhaps due to the high margins enjoyed by its product mix; but with the business model converging with that of its peers, the premium should narrow. Lack of raw material integration and highly levered balance sheet (D/E of 2.9x) would continue to be an overhang on the stock. While we value Bhushan marginally above its peers at 7x FY14E EV/EBIDTA, the arrived fair value is still 16.5% below the current market price. We maintain our SELL rating with a 9-month price target of Rs413.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|OPM (%)||29.3||30.3||(101) bps||29.2||9 bps|
|Effective tax rate (%)||23.8||27.1||23.7|
|Adj. PAT margin (%)||7.9||7.2||64 bps||8.4||(50) bps|
|Ann. EPS (Rs)||38.0||38.8||(2.2)||39.0||(2.6)|
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|yoy growth (%)||24.3||42.2||9.9||41.3|