SAIL
Reco price: Rs 105;
Target price: Rs 108
Steel Authority of India Ltd (SAIL) has risen 23 per cent in the past three months, outperforming the Sensex by nine per cent. Citi has downgraded it to Neutral due to limited upside; lower than peers’ volume growth and higher wage costs, which will impact Q4 and FY13 net profit; and expensive valuations (at 6.3 times FY13 EV/Ebitda; 8.7 times P/E). Citi has cut its net profit forecasts by 20-24 per cent for FY12-14 as they have: 1) Reduced volumes by seven to eight per cent based on likely delays to expansion plans; 2) Incorporated revised steel prices; and 3) Updated costs and forex rates. SAIL is likely to start providing for higher staff costs from January 1, 2012. Neutral.
Citigroup
TECHNOFAB ENGINEERING LTD
Current market price: Rs 149;
Fair value: Rs 200
CRISIL Research has assigned fundamental grade 3/5 to Technofab Engineering Ltd (Technofab). A strong order book of Rs 1,020 crore, 2.8 times trailing twelve months revenue, provides visibility for the next 24-30 months. As of September 2011, Technofab’s net worth was Rs 150 crore with net debt of Rs 30 crore, i.e. net debt-equity ratio of 0.2 times - extremely low versus the peers’ average of 2.1 times. Technofab is exposed to logistic challenges and foreign exchange fluctuation risks as 50 per cent orders are overseas. CRISIL Research expects revenues to register a three-year CAGR of 26 per cent to Rs 580 crore in FY14, Ebitda margin to increase by 20 basis points in FY13 to 13 per cent and remain at a similar level in FY14. Adjusted net profit is expected to log a CAGR of 18 per cent to Rs 42 crore in FY14 and EPS to increase from Rs 24.6 in FY11 to Rs 40 in FY14.
CRISIL Research
VISA STEEL
Reco price: Rs 59;
Target price: Rs 54
Visa Steel Ltd (VSL) reported a dismal set of numbers for Q3FY12, primarily on the back of higher operating costs and constraints in supply of raw materials in Odisha. The top line came in at Rs 384.2 crore, which was up 10.8 per cent YoY. On higher operating costs, the Ebitda margin declined by a sharp 1,270 basis points YoY to 0.8 per cent. As a result, the ensuing Ebitda during the period under review stood at Rs 3.2 crore, sharply lower both YoY as well as QoQ. The interest cost also increased sharply by 59.7 per cent YoY to Rs 30.7 crore. On the back of a steep decline in the rupee against the dollar, there was net unrealised MTM loss of Rs 33.3 crore due to restatement of foreign currency monetary items. As a result, the ensuing resulting net loss during the period under review stood at Rs 38.9 crore. Maintain hold.
ICICI Direct
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NCL INDUSTRIES
Reco price: Rs 48;
Target price: Rs 90
NCL derives over 80 per cent of its revenues from the cement business while the rest of sales come from segments like cement particle board, prefab structures and hydel energy. Its cement business has delivered a strong average Ebitda per tonne of Rs 912 for the last 11 quarters. Analysts believe the company’s strong brand franchise and pricing power in North Coastal AP and above industry volume growth post-expansion supported by robust pricing environment in the south Indian cement market would enable NCL to post Ebitda per tonne of Rs 1,000, going forward. Given strengthening balance sheet, earnings CAGR of 20 per cent over FY12-14 and an attractive valuation of 2.5 times FY13 estimated EV/Ebitda, analysts believe, NCL is an excellent investment opportunity. Initiate coverage with Buy.
Auctus Capital India