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KEY HIGHLIGHTS
STOCK DATA
Visa Steel Ltd (VSL) registered excellent growth with revenue
Market Cap Rs5.7bn. rising by 85% to Rs2.6bn. OPM expanded by 1,160bps to 17.8%
Book Value per share Rs32
while net profits surged by 30x to Rs210mn.
Eq Shares O/S (F.V. Rs.10) 110mn.
Median Vol (12 mths) 194,897 (BSE+NSE) The key attribute to this robust performance was an overall
52 Week High/Low Rs 65/31
buoyancy in realisations being witnessed in the commodities.
Bloomberg Code VISA.BO
Reuters Code VISA.IN z Healthy coke and ferro chrome volumes
The upcoming 300k tpa DRI plant and 50MW of power (of proposed
STOCK PRICE PERFORMANCE 75MW) is expected to go on stream by the end-Q1FY09. This should
contribute significantly towards volume growth in FY09 and FY10. Also,
VSL BSE (Rebased) the 500k tpa special/stainless steel plant will be commissioned by FY10.
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VALUATIONS AND RECOMMENDATION
65
YoY Gr (%) 2.2 54.0 85.1 53.5 37.3 28.2 114.9 30.9 ROCE (%) 11.8 8.6 11.2 23.4 24.3
Op. Profits 142 237 465 360 396 919 2,730 3,768 RONW (%) 6.5 6.7 13.0 35.6 33.5
Op. Marg.(%) 9.3 12.1 17.8 9.3 7.5 13.5 18.7 19.7 P/E(x) 46.1 27.8 13.3 3.9 3.0
Net Profits 35 136 210 124 205 431 1,467 1,881 EV/Sales (x) 1.3 1.7 2.0 0.9 0.6
Eq Capital 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 EV/EBDIT (x) 13.9 19.4 14.4 4.8 3.1
VSL has sufferred losses of Rs 24 mn due to foreign exchange fluctuations which are
reflected in other income. Interest (+86% YoY) and depreciation (+76% YoY) rose due
to capitalisation of the ferro chrome facilities to Rs 54 mn and Rs 59 mn. However
,despite these losses and increase in capital charges, net profits surged more than
30x to Rs 210 mn (YoY).
Raw material linkages
Visa currently sources chrome ore and coking coal requirements from Orissa Mining
Corporation (OMC) and Millenium Coal Pty (Australia). Iron ore is procured from OMC
and Sesa Goa. It has been allotted a captive coal block (Patrapar, Thalcher) which is
expected to commence operations over the next 18-20 months.Chrome ore will be
sourced from Ghotaringa Minerals Ltd (89% subsidiary), which is currently prospecting
for chrome ore deposits. It has also signed an MoU with the Orissa government for an
iron ore mine.
OUTLOOK
The blast furnace, post the maintenance shutdown will ramp up quickly and is expected
OPM to improve to 18.7% to reach optimum utilisation levels by Q2FY09. Moreover, the coke oven batteries as well
and 19.7% in FY09 and as ferro alloy capacities are expected to contribute significantly towards revenue growth
FY10 respectively... and profitability. The 300k mt sponge iron plant along with 50MW CPP will aid in generating
additional volume growth. We expect VSL’s net sales to grow by 114% in FY09 and 30%
in FY10 to Rs14.7bn and Rs19.1bn. Its OPM to improve by 520bps to 18.7% in FY09 and
100bps to 19.7% in FY10. This should result in net profit growing by 240% in FY09 and
28% in FY10 to Rs1.4bn and Rs1.8bn.
VALUATIONS AND RECOMMENDATION
At the CMP of Rs52 the stock trades at a P/E of 3x and EV/EBITDA of 3.5x FY10 estimates.
Post completion of Orissa project it would become a fully integrated low-cost player in
special/stainless steel sector with captive linkages for coke, ferro chrome and power.
This would provide it a competitive cost advantage over its peers. Hence, we maintain
our ‘BUY’ recommendation with a 12-month price target of Rs85.
Company description
Visa Steel has its manufacturing facilities located in Kalinganagar (Orissa) and presently
manufactures pig iron, ferro chrome and coke. It is also setting up captive power
plants and sponge iron kilns. The metallics are proposed to be used captively once the
0.5mn tpa special/stainless steel plant becomes operational.
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Financial Results for the quarter & year ended 31 March 2008 (Standalone)
Quarter Ended Year Ended
Particulars (Rs Mn)
31/03/08 31/03/07 Gr % 31/03/08 31/03/07 Gr %
Basic EPS for the period (Rs.) 1.9 0.1 3.9 1.9
Book Value(Rs) - - 32 29
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Year Ended March (Figures in Rs mn)
PBT & extraordinary items 119 199 343 671 2,189 2,687
Fully diluted Eq. sh. O/s (mn no) 75 110 110 110 110 110
Investments - 9 9 9 9 9
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Year Ended March (Figures in Rs mn)
PBT & Extraord. items 119 199 343 671 2,189 2,687
PBT & extraordinary items 119 199 343 671 2,189 2,687
Depreciation 5 50 98 183 341 581
Provision for gratuity - - 53 - - -
Liabilities no longer required written back - (6) (2) - - -
Unrealisaed foreign Exchange (22) (33) (17) - - -
(Profit)/loss on sale of investment - - - - - -
Interest & dividend inc. (31) (31) (166) (20) (50) (50)
Interest paid 29 92 206 85 250 550
Misc Exp W/off 0 2 27 - - -
Tax paid (5) (18) (15) (89) (646) (729)
(Inc)/Dec in working capital (171) 566 (686) 302 126 (787)
Cash from operations (78) 822 (158) 1,132 2,209 2,252
Net capital expenditure (948) (1,437) (3,496) (5,474) (1,700) (100)
Net investments (0) (9) - - - -
Interest recd 23 21 104 20 50 50
Cash from investing activities (925) (1,425) (3,392) (5,453) (1,650) (50)
Issue of eq. shares 449 350 - - - -
Refund of share application money 601 1,104 3,125 3,537 450 (500)
Change in debt - 1,645 - - - -
Share Issue Exps/ Refund - (50) (83) - - -
Dividend paid - - - (119) (178) (178)
Interest paid (29) (121) (251) (85) (250) (550)
Cash from financing activities 1,022 2,929 2,792 3,333 22 (1,228)
Inc/Dec. in cash 19 2,326 (759) (988) 581 974
Net working capital (days) 102.1 (19.8) (28.9) (35.0) (43.0) (25.0)
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Team
Rishabh Bagaria - Auto / Auto Ancilliary Chandrakant Ware / Shivkumar R / Ashok Savla
rishabhb@pinc.co.in 91-22-66186391 idealing1@bloomberg.net 91-22-66186326
Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211
1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195
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