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• CRISIL Research has come out with its report on Monnet Ispat & Energy . The research firm has maintained the fundamental grade of 4/5 to the company in its March 1, 2012 report.Monnet Ispat & Energy Ltd's (Monnet's) Q3FY12 revenues were in line with CRISIL Research's expectations. Better realisations and higher volumes boosted revenues but EBITDA margin contracted due to higher raw material prices. However, in Q4FY12, we expect EBITDA margin to recover as we believe steel prices will continue to rise but raw material prices will remain flat. Monnet has relatively performed well during the turbulent times faced by the industry in the last one year - thanks to its captive coal mine. Both steel and power projects are progressing well though there is some delay. Once operational, the allocated mines of coal, iron ore and coking coal will provide huge cost benefit to the company. We introduce our estimates for FY14 and maintain our fundamental grade of 4/5.

Q3FY12 result analysis (standalone)

•  Revenues increased 38.6% y-o-y and 4.9% q-o-q to Rs 4,810 mn driven by increased capacity utilisation and better realisations. The steel division's revenue (~86% of total) grew ~50% y-o-y and 8% q-o-q to Rs 4,143 mn. Sales volume increased 23% y-o-y and 3% q-o-q; blended realisations increased (up 26% y-o-y and 2% q-o-q) on account of price increase and better product mix. The power division's revenue declined ~20% y-o-y but increased ~9% q-o-q to Rs 569 mn. The company produced less units of power in Q3FY12 due to non-availability of coal. It has started the extraction activity on the next layer of the mine, which has reduced the quantity of coal extraction.

•  The steel division's EBIT margin contracted 211 bps y-o-y to 23% on account of relatively higher increase in raw material prices than blended realisations. The power division's EBIT margin contracted significantly by 1354 bps y-o-y as the company resorted to market purchase of coal due to unavailability of captive coal. Sequentially, contraction in power division's EBIT margin (1388 bps) was offset by the expansion in high contributor steel division's (43 bps) margin. Hence EBIT margin were flat q-o-q with a small change of 9 bps.

•  PAT increased 4.1% y-o-y, in line with operating performance, but declined 5.1% q-o-q to Rs 731 mn because of high interest cost. Rise in interest outgo was due to increase in investments and working capital. PAT margin declined by 503 bps y-o-y and 159 bps q-o-q to 15.2%.

•  The company has reported EPS of Rs 11.4.Valuations: Current market price has strong upsideWe continue to use the sum-of-the-parts (SoTP) method to value Monnet. We roll forward our model to FY14 and increase our fair value to Rs 646 per share.

• Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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