2025-08-30 16:21:15
Latest Post
Himadri Speciality Chemical Ltd Secures ISCC PLUS Certification
HCLSoftware delivers Digital Independence with AI-Powered Sovereign Collaboration Solutions for Business-Critical Infrastructure
Dr. Agarwal's Health Care Limited and Dr. Agarwal's Eye Hospital Limited announce Merger
SAMHI signs agreement to Lease for ~260-room Mid-Scale Hotel in Hyderabad's Financial District
Rail Vikas Nigam Ltd signs JV agreement with Texmaco Rail & Engineering Ltd
Research
Buy ISMT - Sharekhan
Posted On : 2011-11-20 01:47:19( TIMEZONE : IST )
- ISMT
- Cluster: Ugly Duckling
- Recommendation: Buy
- Price target: Rs42
- Current market price: Rs29
Steady revenue growth: ISMT reported strong revenue numbers for Q2FY2012 with its net sales rising by 26.6% to Rs512.2 crore on the back of a volume growth and an improvement in the realisation. The tube segment reported a 19.5% volume growth and a 7.5% improvement in its realisation. The steel segment reported a 10.2% growth in its volume and a 7.8% improvement in its realisation.
OPM declines: Despite the volume growth and realisation improvement, the EBITDA margin contracted by 640 basis points to 13.3% mainly due to input cost pressures. The raw material cost as a percentage of sales increased from 41% in Q2FY2011 to 51.3% in Q1FY2012 which led to a 14% fall in the EBITDA to Rs69.3 crore. On a segmental basis, the profit before interest and tax (PBIT) margin of the steel business declined sharply to 11.1% as compared to 20% in Q2FY2011 whereas that of the tube division fell by 294 basis points to 9.6%. We expect the margins to improve going forward as the company passes on some of the impact of the input cost pressures to its customers.
Bottom line affected by forex charge: On the back of the rupee's depreciation from Rs44.6 as of June 30, 2011 to Rs48.98 on September 30, 2011 to the US Dollar, the company booked foreign exchange (forex) loss of Rs12.5 crore against a marginal loss in the corresponding previous quarter. The loss pertains mainly to the un-hedged portion of the foreign debt. On the back of lower tax provisioning at Rs4.2 crore, down from Rs15.7 crore in the corresponding quarter of the previous year, the fall in the net profit was restricted to 56.5% at Rs10.5 crore against a 63% fall in the profit before tax (PBT).
Valuation and view: The company has maintained a good revenue performance but due to cost pressures it has seen a consistent fall in its margins. With the power plant now being commissioned towards the end of FY2012, the benefit of the same would be seen only in FY2013. On account of the delay in the commissioning of the power plant, which is the key driver of the margin improvement, we have downgraded our earnings estimates by 34% and 32% for FY2012 and FY2013 respectively. At the current market price, the stock is available at 4.2x FY2013 estimated earnings. We maintain our Buy rating on the stock with a revised price target of Rs42 (6x FY2013E earnings).
