Bhushan Steel (Q3 FY14)

India Infoline News Service | Mumbai |

Operating profit declined 23% yoy to Rs6bn due to lower volumes and an increase in raw material costs.

CMP Rs456, Target Rs403, Downside 11.6% 
  • Bhushan steel reported below par numbers during the quarter due to a jump in raw material costs and inferior product mix. Raw material costs jumped due to an increase in iron ore costs. A blast during the trial runs of the new blast furnace led to some volume loss for the company. The company reported a net loss of Rs0.6bn against a profit of Rs2.2bn in Q3 FY13 and Rs0.6mn in Q2 FY14.

  • Topline of Rs24bn was lower by 4.8% yoy due to lower sales volume, but was inline with our estimate. Blended realisations were lower by 0.1% qoq against our expectation of a 1.8% qoq increase. We believe this was due to inferior product mix. The share of Value Added Products (VAP) from the company's Khopoli plant declined from 40.9% in Q2 FY14 to 38.6% in Q3 FY14. Production of HRC delcined on a qoq basis due to the tight iron ore market. Sales volume during the quarter was lower by 11.9% yoy to 0.5mn tons.

Sales volume and realisation trend
  Q3 FY14  Q3 FY13 % yoy Q2 FY14 % qoq
Sales volume          
CR steel 152,719 127,778 19.5 140,097 9.0
Galvanised steel 127,734 123,409 3.5 137,622 (7.2)
H&T 4,209 3,458 21.7 3,412 23.4
HTSS 2,295 2,464 (6.9) 2,483 (7.6)
Colour coating 39,748 37,034 7.3 45,307 (12.3)
Hot rolled steel 95,953 188,806 (49.2) 70,338 36.4
Flat products 422,658 482,949 (12.5) 399,259 5.9
Billets 24,421 34,976 (30.2) 24,905 (1.9)
Tube & Shutters 49,588 40,726 21.8 43,068 15.1
Long products 74,009 75,702 (2.2) 67,973 8.9
Total sales volume 496,667 563,743 (11.9) 467,232 6.3
           
Realisations          
CR steel 50,884 49,007 3.8 47,845 6.4
Galvanised steel 53,557 50,969 5.1 52,331 2.3
H&T 93,371 95,431 (2.2) 98,160 (4.9)
HTSS 72,648 66,558 9.1 70,354 3.3
Colour coating 65,840 63,509 3.7 65,278 0.9
Hot rolled steel 39,801 38,113 4.4 37,220 6.9
Flat products 51,122 46,783 9.3 50,069 2.1
Billets 41,685 41,228 1.1 40,453 3.0
Tube & Shutters 56,962 55,738 2.2 55,327 3.0
Long products 45,157 49,034 (7.9) 49,877 (9.5)
Blended realisations 48,467 45,272 7.1 48,675 (0.4)
Source: Company, India Infoline Research
  • Operating profit declined 23% yoy to Rs6bn due to lower volumes and an increase in raw material costs. We are surprised by the increase in costs during the quarter. EBIDTA/ton for the quarter stood at Rs12,114/ton lower than our estiamte on account of lower realisations and a jump in costs. Costs were higher than our estimate even though production of VAPs was lower on a qoq basis. Raw material costs and coversion costs jumped 8.5% and 38.2% qoq. Raw material costs per ton of saleable steel is expected to remain higher going ahead due to the tight iron ore market in the region. Most of the miners had announced price hikes during the quarter.

Sales and cost analysis
  Q3 FY14  Q3 FY13 % yoy Q2 FY13 % qoq
Steel sales volume (Tons) 496,667 563,743 (11.9) 467,232 6.3
Blended realisations (Rs/ton) 48,466 44,862 8.0 48,530 (0.1)
RM cost per ton of steel (Rs/ton) 27,106 24,305 11.5 24,991 8.5
Conversion cost per ton of steel (Rs/ton) 9,247 6,689 38.2 8,582 7.7
EBIDTA per ton of steel (Rs/ton) 12,114 13,868 (12.7) 14,957 (19.0)
Source: Company, India Infoline Research
  • We remain negative on the company on account of the rising tightness in the iron ore market. Iron ore prices have moved northwards over the last one quarter and are expected to remain elevated in the near term. The commissioning of the new capacities would take some time due to the explosion at the boiler of the new blast furnace. The high leverage and pressure on margins would curtail the earnings growth for the company. Maintain SELL with a price target of Rs403.

Results table
(Rs mn) Q3 FY14 Q3 FY13 % yoy Q2 FY14 % qoq
Net sales 24,072 25,291 (4.8) 22,675 6.2
Material costs (13,463) (13,702) (1.7) (11,676) 15.3
Personnel costs (487) (439) 10.9 (462) 5.4
Other overheads (4,106) (3,332) 23.2 (3,548) 15.7
Operating profit 6,016 7,818 (23.0) 6,989 (13.9)
OPM (%) 25.0 30.9 (592) bps 30.8 (583) bps
Depreciation (2,423) (2,074) 16.8 (2,351) 3.0
Interest (4,321) (2,930) 47.5 (3,892) 11.0
Other income 34 37 (6.8) 91 (62.7)
PBT (693) 2,850 - 836 -
Tax 145 (638) - (235) -
Effective tax rate (%) 21.0 22.4   28.1  
Adjusted PAT (548) 2,212 - 601 -
Adj. PAT margin (%) (2.3) 8.7 (1,102) bps 2.6 (492) bps
Reported PAT (548) 2,212 - 601 -
Ann. EPS (Rs) (9.7) 41.7 - 10.6 -
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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