Visa Steel Limited (VSL)
Visa Steel Limited (VSL) September 01, 2008 Initiating Coverage
CMP: INR 52
Target Price: INR 71
BSE Sensex
14,565
S&P Nifty
4,360
BSE Metal
12,348
Bloomberg Consensus (BUY/SELL/HOLD)
1/0/0
BSE Code
532721
NSE Code
VISASTEEL
Bloomberg Code
VISA IN
Reuters
VISA.BO 66/31
Equity (INR Mn)
1,100
Market Cap. (INR Mn)
5,709
Shareholding Pattern (%)
Visa Steel’s business is based on a progressive monetising of facilities through marketing intermediates. Each of these intermediates is, by itself, a strong product in a dynamic and supply-starved market, which has provided strong cash flow at very early levels. VISA Steel has faced some delays in commissioning of key facilities due to serious political disturbances in addition to a major contractor resource crunch during setting up its integrated steel plant. The company is setting up an integrated 500,000 tonne special and stainless steel complex in Orissa, where it has already commissioned ancillary facilities like pig iron plant, coke oven batteries & ferro chrome plant, while sponge iron and power plant is near commissioning and revenue generation would start from next quarter onwards.
Investment Rationale:
Foreign
7.27
Institutions
1.49
Corporate
5.06
Promoters
72.73
Public & Others
100.00
Returns
Abs
(%)
Perf
Sensex
BSE Metal
1 Month
-8.87
-10.81
-6.11
Relative to
3 Months
-7.57
3.71
19.43
1 Year
62.19
67.11
55.42
Relative Price Performance Visa
BSE Metal
Sensex
Strong Volume Growth Visa Steel is at inflection point, where it is poised to achieve marvelous volume growth in coming years. In addition to the 50,000 tonne ferro chrome plant commissioned in fourth quarter of last year, a 50 MW captive power plant and 300,000 tonne sponge iron plant have commissioned during the quarter. Apart from this, its 225,000 tonne pig iron facility has also started and stabilized after its planned closure for a refractory relining, which would start contributing towards financial performance from Q2FY09. Further, the steel melt shop, rolling mills and additional 25 MW power plant are expected to generate revenues and profits from financial year FY11 onwards.
13.46
Total
Substantial margin improvement The company is likely to register EBITDA margin of 19.9% in FY10 and 22.4% in FY12 from 15.0% during FY08. Focus on value addition along with lower power cost due to captive power plant would lead this margin improvement. Net profit margin would also improve to 8.1% and 9.0% in FY10 and FY12 respectively from 6.1% during FY08 on back of economic of scale and strong EBITDA performance.
200
175
150
125
100
Analyst: Giriraj Daga Email: [email protected]
Khandwala Securities Limited
Jul-08
Aug-08
Jun-08
Apr-08
Source: Comline Products
May-08
Mar-08
Jan-08
Feb-08
Dec-07
Oct-07
Nov-07
Sep-07
75 Aug-07
Initiating Coverage
52 Wk High/Low (INR)
BUY
Alliance with Baosteel VISA Steel has signed a JV agreement with Baosteel Resources Co. Ltd. a China based company and VISA Comtrade AG, a Switzerland based company, to seize the opportunity in value addition of chrome ore into ferro chrome. The JV Company, VISA BAO Limited, will set up a 100,000 tonne ferro chrome plant in Orissa having a capex of Rs 2,600 mn and a debt equity ratio of 65:35. VISA Steel, Baosteel and VISA Comtrade AG each respectively hold 51%, 35% and 14% stake in VISA BAO Limited.
For private circulation only Vikas Building, Green Street, Fort, Mumbai 400 023. Please read the Important Disclosure at the end of this report. Tel No. +91 22 4076 7373 Fax No. +91 22 4076 7377 Our Research Reports can be accessed on: www.bloomberg.net (KHDS), www.capitaliq.com, www.thomsonreuters.com, www.kslindia.com, www.moneycontrol.com, www.securities.com This report is a part of intellectual property of Khandwala Securities Limited; any query on this report may be directed to Head of Research at [email protected]
Khandwala Securities Limited
Financial Summary (INR Mn)
FY07
FY08
FY09E
FY10E
FY11E
FY12E
Net Sales
5,312
6,808
17,393
16,781
18,800
20,298
EBITDA
464
1,018
2,799
3,342
4,206
4,693
PAT
205
431
1,253
1,474
1,574
1,869
EPS (INR)
1.87
3.92
11.39
13.40
14.31
16.99
27.66
13.15
4.53
3.85
3.61
3.04
P/E
Valuation
Visa Steel focus on integration has yielded in multiple returns for the company, apart from augmenting operating metrics and ensuring self-sufficiency in raw material and intermediates. This has also allowed facilities to be fully tested and de-bottlenecked in readiness for the final production at superior levels of capacity utilization. Therefore, we expect company to achieve capacity utilization of over 90% across the product categories within 2-3 year of operation. At Rs 54, the company is trading at P/E of 4.5x and 3.9x for FY09 and FY10 earnings, while on EV/EBITDA basis, it is trading at 4.6x and 3.9x for FY09 and FY10 respectively. Our target price of Rs 71 is based on average of EV/EBITDA of 4.5x FY10, which provide 37% return from current price.
Sensitivity Analysis:
FY10 EPS level at different realization and cost
Cost
Realization -5.0%
-3.0%
0.0%
3.0%
5.0%
-5.0%
11.63
13.58
16.52
19.45
21.41
-3.0%
10.38
12.33
15.27
18.20
20.16
0.0%
8.51
10.46
13.40
16.33
18.29
3.0%
6.63
8.59
11.52
14.46
16.41
5.0%
5.38
7.34
10.27
13.21
15.16
Upside to Valuation
Early commissioning of steel plant
Firm coke, ferro chrome and steel prices
Better than expected progress in greenfield projects
Downside to Valuation
Khandwala Research
Delay in plant commissioning
Steady decline in product prices
Visa Steel Limited September 01, 2008
2
Khandwala Securities Limited
T ABLE Sl No
OF
C ONTENT
Descriptions
Pg No
1.
Investment Rationale
4
2.
SWOT Analysis
6
3.
Financial Analysis
7
4.
Industry Overview
8
5.
Company Overview
10
6.
Financial Summary
11
7.
Income Statement
11
Balance Sheet
12
Cash Flow Statement
13
Key Ratios
14
Disclaimer
Khandwala Research
15
Visa Steel Limited September 01, 2008
3
Khandwala Securities Limited
Investment Rationale Steadily Commissioning Capacities
Visa Steel is at inflection point, where it is poised to achieve marvelous volume growth in coming years. In addition to the 50,000 tonne ferro chrome plant commissioned in third quarter of last year, a 50 MW captive power plant and 300,000 tonne sponge iron plant is near completion. Apart from this, its 225,000 tonne pig iron facility has also started and stabilized after its planned closure for a refractory relining, which would start contributing towards financial performance from Q2FY09. Further, the steel melt shop, rolling mills and additional 25 MW power plant are expected to generate revenues and profits from financial year FY11 onwards. The company took various de-bottlenecking processes in last one year, where pig iron has restarted from second quarter of current year and coke production has reached 90% capacity utilization levels after installing the second pusher car during March 2008. Debottlenecking the Coke Oven and the Blast Furnace led to the creation of multiple revenue streams from which the Company will derive full benefits in the coming year. Apart from these, Visa Steel has entered into an MoU with the Government of Chhattisgarh for setting up a 2.5 MT integrated steel plant along with other facilities with a proposed investment of Rs 47,500 mn. However, it would take around 5-7 years to commission these units and become revenue generative. The steel industry is on an upswing, driven by high coking coal and iron ore prices. Indian steel prices would continue to remain firm due to wide difference between domestic & international prices and higher input prices. With pig iron, sponge iron, ferro chrome and coke prices at all time record high levels, Visa Steel would benefit significantly given that their capacities are coming on stream at the best possible time. Production 5
Lamcoke
In Lakh Tonne
Pig Iron
Ferro Chrome
Sponge Iron
4
3
2
1
0 FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
Source: Company, Khandwala Research
A strategic alliance with Baosteel
China accounts for 25% of world’s stainless production, thereby emerging as a large buyer of chrome ore and ferro chrome. Baosteel, one of the largest stainless steel producers in China has been a buyer of VISA Comtrade’s chrome ore for several years. VISA Steel signed a JV agreement with Baosteel Resources Co. Ltd., a China based company and VISA Comtrade AG, a Switzerland based company, to seize the opportunity in value addition of chrome ore into ferro chrome. The JV company, VISA BAO Limited, will set up a 100,000 tonne ferro chrome plant in Orissa having a capex of Rs. 2,600 mn and a debt equity ratio of 65:35.
Khandwala Research
Visa Steel Limited September 01, 2008
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Khandwala Securities Limited
VISA Steel, Baosteel and VISA Comtrade AG each respectively hold 51%, 35% and 14% stake in VISA BAO Limited. The groundwork for this project would begin by Oct 2008. On commissioning, VISA Steel and VISA BAO put together will be one of the largest ferro chrome producers in India. A majority of the total ferro chrome production will be sold to Baosteel. Baosteel’s immense market credibility and the advantage of having a ready customer for enhanced production will help improve VISA Steel’s profitability. India is already a major exporter of chrome ore and chrome concentrates to China with over 1 MT exports over last 4 years. The Government of India encourages value addition of ore within India by imposing export tax on exports of chrome ore and concentrates. Over time, India shall emerge as a large exporter of ferro chrome instead of chrome ore. Securing Raw Material
Captive Power Supply
Khandwala Research
To enhance the competitiveness, the company is integrating its operations backwards into the mining of iron ore, chrome ore and coal. Its several initiatives towards this include:
Developing chrome ore deposits in Orissa through its subsidiary, Ghotaringa Minerals Ltd, while additional chrome ore is procured from Industrial Development Corporation of Orissa Ltd (IDCOL) and Orissa Mining Corporations (OMC).
The company is procuring iron ore supplies from OMC.
Visa Steel has also been jointly allocated the Patrapada coal block in Orissa.
It also has active plans to set up integrated steel plants in other mineral rich states such as Chhattisgarh and Jharkhand.
These mines are situated at very prominent location, which provide locational and logistic advantages
Talcher (Orissa) coalfields are situated 110 kms away.
The Daitari iron ore mines are located 30 kms away while the Keonjhar and Barbil mines are 100 - 150 kms away.
The Sukinda chrome ore mines are 35 kms away.
The Paradip port is located within 120 kms away from the Plant.
Ferro chrome production is a power-intensive process, as is the entire steel manufacturing chain. Visa Steel is in the process of setting up a 75 MW captive power plant in two phases. The first phase of this project is the commissioning of a 50 MW Power Plant by utilizing waste heat generated by the Coke Oven, Blast Furnace and DRI Plant followed by an additional 25 MW Power Plant using coal and char. Visa Steel has also commissioned the 220 kv power transmission line to facilitate stable supply of power at the Kalinganagar facility. These steps will offer the twin benefits of assured power supply and steady cash flow by using captive power. The company will bolster its profit margins by leveraging a substantial cost saving compared to existing costs.
Visa Steel Limited September 01, 2008
5
Khandwala Securities Limited
SWOT Analysis Strengths
Weakness
It’s business is based on a progressive monetising of facilities through marketing intermediates
Robust volume growth on back of very promising expansion plans
Dependence from external sources for iron ore, thermal coal and imported coking coal, where prices have moved unprecedented trajectory levels
Delay in implementation of project due to nonavailability of skilled manpower and contractor workforce may lead to opportunity loss in revenue generation and rise in costs
The company has locational advantages, as it is raw material sources are located in near by areas only
The company is integrating its operation with either long-term contracts or captive mines for raw materials
JV with Baosteel will help the company to gain technical and financial strength
Opportunities
Threats
Strong Economy growth (second fastest growing Economy after China)
Booming infrastructure sector (Roads, Ports, Airports, SEZs, Power)
Steel prices are running at unprecedented high levels due to steep rise in raw material cost, which may impact the demand going forward
Strong demand in automobile sector, consumer durables sector and engineering goods sector
Bureaucratic nature of Government - Socio-Political interventions (in leasing mines)
High interest rates could affect programmes (Higher cost of Finance)
High cost of Energy
Deficit infrastructure
Robust demand in construction and retail industry
Low per capita steel consumption offers a higher growth
Rich Geological Resource base
Growing Skilled and Technical Human Capital.
Khandwala Research
Visa Steel Limited September 01, 2008
expansion
6
Khandwala Securities Limited
Financial Analysis Sales and Sales Net Change
EBIDTA and EBIDTA Margin 200%
5,000
20,000
150%
4,000
20%
15,000
100%
3,000
15%
10,000
50%
2,000
10%
5,000
0%
1,000
5%
25,000
(INR Mn)
Net Sales
% Chg
FY08
FY09E
FY10E
FY11E
2,000
25%
EBITDA Margin
0% FY07
FY12E
PAT and PAT Margins
EBITDA
0
-50% FY07
(INR Mn)
FY08
FY09E
FY10E
FY11E
FY12E
Networth, Debt and Debt-Equity Ratio
(INR Mn)
PAT
12.0%
PAT Margin
(INR Mn)
10,000
Networth
Debt
Debt-Equity
2.5
1,600
10.0%
8,000
2.0
1,200
8.0%
6,000
1.5
800
6.0%
4,000
1.0
400
4.0%
2,000
0.5
0
0
2.0% FY07
FY08
FY09E
FY10E
FY11E
0.0 FY07
FY12E
EPS and CEPS
FY08
FY09E
FY10E
FY11E
FY12E
Book Value
35 (INR)
EPS
70
CEPS
(INR)
28 55
21 40 14 25 7
10
0 FY07
FY08
Khandwala Research
FY09E
FY10E
FY11E
FY12E
FY07
Visa Steel Limited September 01, 2008
FY08
FY09E
FY10E
FY11E
FY12E
7
Khandwala Securities Limited
Industry Overview China Steel Production
China Steel Export
China steel production is rising at a very steady pace and this would continue to do so albeit some lower rate. The much hyped Olympic is over and we believe that fear of steel consumption slow down is not real since countries development are not based on single event.
China steel exports increased at a rapid pace in last couple of years despite putting curbs on steel exports. We believe, Government effort of closing in-efficient steel mills and encourage value added steel exports would curtail any steel dumping in global market.
50
8
Mn Tonne
Mn Tonne
40 6 30 4 20 2 10
Jul-08
Jan-08
Apr-08
Jul-07
Oct-07
Apr-07
Jan-07
Jul-06
Oct-06
Apr-06
Jan-06
Jul-05
Oct-05
Jan-05
Apr-05
Jul-04
Oct-04
Jan-04
Jul-08
Jan-08
Apr-08
Jul-07
Oct-07
Jan-07
Apr-07
Jul-06
Oct-06
Jan-06
Apr-06
Jul-05
Oct-05
Jan-05
Apr-05
Oct-04
Jul-04
Jan-04
Apr-04
Apr-04
0
0
Source: Bloomberg, Khandwala Research
Source: Bloomberg, Khandwala Research
China Coke Production
China Coke Export
China coke production has also kept strong pace along with steel production and increase multifold during last five years on back of unquenchable demand and robust prices.
China coke exports have remained stagnated during last five years on account of stricter Government norms for coke exports. Recently China increased its exports duty from 25% to 40% to preserve natural resources for its own development.
30
Mn Tonne
2.5
25
Mn Tonne
2.0
20 1.5 15 1.0 10 0.5
5
Khandwala Research
Jul-08
Jan-08
Apr-08
Oct-07
Jul-07
Jan-07
Apr-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Jan-05
Apr-05
Oct-04
Jul-04
Apr-04
Jul-08
Apr-08
Jan-08
Jul-07
Oct-07
Apr-07
Jan-07
Jul-06
Oct-06
Jan-06
Apr-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Jan-04
Apr-04
Source: Bloomberg, Khandwala Research
Jan-04
0.0
0
Source: Bloomberg, Khandwala Research
Visa Steel Limited September 01, 2008
8
Khandwala Securities Limited
China Steel Export Prices
China Coke Export Prices
China export prices recorded over 100% jump in last 15 months before seeing some seasonal downturn. We believe, prices will bounce back after seasonal correction and any meaningful decline would only happen after raw material cool off.
Coke export prices have jumped extraordinary during last 18 months due to export duty on coke export and unprecedented rise in coking coal prices. Prices may rise USD 100/tonne from hereon following recent increase in export duty.
1,200
USD Per Tonne
750
USD Per Tonne
600 1,000 450 800 300 600 150
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Jan-02
0
400
Source: Bloomberg, Khandwala Research
Source: Bloomberg, Khandwala Research
India Steel Production
India Steel Prices
India steel production saw a rapid jump in last one year and this would continue to rise following new capacity addition from Tata and JSW.
Indian steel prices have essentially followed global prices expect last few months due to Government effort for fighting inflation. Therefore, Indian steel producer would be able to withstand the recent global seasonal price correction without much impact.
5
50,000
Mn Tonne
INR Per Tonne
4 40,000 3 30,000 2 20,000 1
0
Source: Bloomberg, Khandwala Research
Khandwala Research
Jan-08
May-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
Sep-02
May-02
Jan-02
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Jul-04
Oct-04
Apr-04
Jan-04
10,000
Source: Bloomberg, Khandwala Research
Visa Steel Limited September 01, 2008
9
Khandwala Securities Limited
Company Overview Visa Steel is part of the VISA Group; a conglomerate with decade-long experience in global minerals and metals industry. Its business model is based on a progressive monetizing of facilities through marketing intermediates. Each of these intermediates is, by itself, a strong product in a dynamic and supply-starved market. Along the way, opportunities that are adjunct to the steel production value chain, among them the cogeneration of power from waste heat and the supply of value added products, are also captured. At Visa Steel, integration is therefore an act that yields multiple returns. Besides augmenting operating metrics, it ensures self-sufficiency in raw material and intermediates. It also allows facilities to be fully tested and de-bottlenecked in readiness for the final production at superior levels of capacity utilization. Integrating the value chain, acts as a value protector by insulating against supply side interruptions and price fluctuations. For Visa Steel, value chain integration is the way forward in realizing the vision of becoming a dominant special and stainless steel player in India. The company has faced serious political disturbances in addition to a major contractor resource crunch, which together have delayed the commissioning of key facilities in setting up its Integrated Steel Plant. However, company’s facilities have been steadily coming on stream with some minor delays. The company is in the process setting up a 0.5 MT integrated steel plant in Orissa. It has production facilities in Kalinganagar and Golagaon, located in the eastern Indian state of Orissa. The integrated special and stainless steel plant at the Kalinganagar industrial complex and Golagaon includes the following facilities:
Plant
Capacity
Remarks
Kalinganagar Industrial Pig Iron Plant
225,000 tonne
Operational
Coke Oven Plant
400,000 tonne
Operational
Ferro Chrome Plant
50,000 tonne
Operational
Sponge Iron Plant
300,000 tonne
Near completion
Steel Melt Shop
500,000 tonne
Q1FY2011
Bar & Wire Rod Mill
500,000 tonne
Power Plant
75 MW
Q1FY2011 50 MW near completion during current quarter, 25 MW in Q1FY2011
Golagaon Operations
Khandwala Research
Chrome Ore Beneficiation Plant
100,000 tonne
Operational
Chrome Ore Grinding Plant
100,000 tonne
Operational
Visa Steel Limited September 01, 2008
10
Khandwala Securities Limited
Financial Summary Income Statement Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
5,618
7,002
17,931
17,300
19,381
20,925
Sales Less: Excise
306
195
538
519
581
628
5,312
6,808
17,393
16,781
18,800
20,298
67
20
20
20
20
20
5,379
6,828
17,413
16,801
18,820
20,318
Raw Material Consumed
2,139
1,870
11,607
10,406
9,160
9,160
Purchase of Finished Goods
2,281
2,977
811
479
202
90
Net Sales Other Income Total Expenditure
Employees' Remuneration and Benefits
51
140
385
492
536
543
Power & Fuel
55
234
385
443
1,172
1,450
Other Expenditure
322
569
1,406
1,619
3,524
4,362
Total Expenditure
4,848
5,790
14,594
13,439
14,593
15,605
EBITDA
464
1,018
2,799
3,342
4,206
4,693
8.7%
15.0%
16.1%
19.9%
22.4%
23.1%
Depreciation
98
183
408
439
788
862
Miscellaneous Expenditure written off
27
27
26
26
26
-
407
829
2,385
2,897
3,412
3,851
EBITDA Margin (%)
PBIT Interest and Finance PBT Current Tax FBT Deferred Tax
64
157
468
640
1,000
992
343
671
1,917
2,257
2,412
2,859
39
84
240
282
301
357
5
5
13
16
18
18
94
151
412
485
519
615
Total Tax
138
240
664
784
838
990
Profit After Tax
205
431
1,253
1,474
1,574
1,869
Khandwala Research
Visa Steel Limited September 01, 2008
11
Khandwala Securities Limited
Balance Sheet Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Capital
1,100
1,100
1,100
1,100
1,100
1,100
Reserves and Surplus
2,066
2,370
3,365
4,581
5,769
7,252
Net Worth
3,166
3,470
4,465
5,681
6,869
8,352
Loan funds - Secured loans
4,986
6,988
7,800
8,000
10,000
8,000
198
349
761
1,247
1,765
2,380
8,350
10,807
13,026
14,928
18,634
18,732
2,663
4,272
9,712
10,712
19,712
21,018
SOURCES OF FUNDS Shareholders' Funds
Deferred Tax Liability (Net) TOTAL APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation
170
359
767
1,206
1,995
2,856
Net Block
2,493
3,913
8,945
9,506
17,718
18,162
Capital Work-in-Progress
3,727
6,046
4,356
6,506
1,506
400
Total Fixed Assets
6,220
9,959
13,301
16,012
19,223
18,562
9
9
9
9
9
9
1,195
2,788
3,985
3,888
4,213
4,549
Investments Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Deposits Loans and Advances
414
963
2,241
2,163
2,423
2,616
1,728
857
700
755
1,041
1,593
41
19
19
19
19
19
465
975
1,255
1,384
1,454
1,507
3,843
5,603
8,201
8,209
9,150
10,284
1,825
4,709
8,279
9,071
9,362
9,736
1
134
257
257
386
386
1,826
4,843
8,536
9,328
9,748
10,122
2,017
760
(336)
(1,119)
(598)
162
Less: Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure TOTAL
Khandwala Research
105
78
52
26
0
0
8,350
10,807
13,026
14,928
18,634
18,732
Visa Steel Limited September 01, 2008
12
Khandwala Securities Limited
Cash Flow Statement Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
343
671
1,917
2,257
2,412
2,859
Depreciation & Amortization
98
183
408
439
788
862
Miscellaneous Expenditure Written Off
27
27
26
26
26
-
Other
49
139
-
-
-
-
517
1,019
2,351
2,722
3,226
3,721
Inventories
(44)
(1,552)
(1,196)
97
(326)
(336)
Sundry Debtors
(25)
(572)
(1,278)
79
(260)
(193)
Loans and Advances
(189)
(513)
(280)
(129)
(70)
(53)
Trade and Other Payables
(419)
2,715
3,570
792
291
375
Cash generated from Operations
(161)
1,097
3,167
3,561
2,862
3,514
-
-
(134)
(257)
(257)
(386)
(15)
(55)
(252)
(298)
(319)
(375)
(176)
1,042
2,781
3,005
2,285
2,752
Purchase of Fixed Assets
(801)
(1,411)
(5,440)
(1,000)
(9,000)
(1,306)
Capital Work in Progress
(2,702)
(2,361)
1,690
(2,150)
5,000
1,106
Cash Flow from Operating Activities: Net Profit Before Tax Adjustments for:
Operating Profit before Working Capital changes Changes in Working Capital
Dividend Paid Income Taxes paid during the year Net Cash generated from Operating Activities Cash Flow from Investing Activities:
Other Net Cash used in Investing Activities
110
209
-
-
-
-
(3,392)
(3,562)
(3,750)
(3,150)
(4,000)
(200)
2,864
2,774
812
200
2,000
(2,000)
Cash Flow from Financing Activities: Proceeds from Long Term Borrowings
55
(1125)
-
-
-
-
Net Cash used in Financing Activities
Other
2,809
1,649
812
200
2,000
(2,000)
Net increase in Cash and Cash Equivalents
(759)
(871)
(157)
55
285
552
Cash and Cash Equivalents at the beginning of the year
2,487
1,728
857
700
755
1,041
Cash and Cash Equivalents at the end of the year
1,728
857
700
755
1,041
1,593
Khandwala Research
Visa Steel Limited September 01, 2008
13
Khandwala Securities Limited
Key Ratios Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
1.87
3.92
11.39
13.40
14.31
16.99
Financial Ratios EPS (INR) CEPS (INR) Book Value (INR) Dividend Per Share (INR)
3.85
7.20
19.08
22.04
26.43
30.42
18.78
21.54
30.59
41.65
52.45
65.93
-
1.00
2.00
2.00
3.00
3.00
1.57
2.01
1.75
1.41
1.46
0.96
P/E (x)
27.66
13.15
4.53
3.85
3.61
3.04
P/CEPS (x)
Debt-Equity (x) Valuation Ratios
13.40
7.17
2.70
2.34
1.95
1.70
Price/Book Value (x)
2.75
2.40
1.69
1.24
0.98
0.78
Market Cap/Sales (x)
1.07
0.83
0.33
0.34
0.30
0.28
EV (INR Million)
8,934
11,807
12,776
12,921
14,635
12,083
EV/EBITDA (x)
19.25
11.60
4.56
3.87
3.48
2.57
1.68
1.73
0.73
0.77
0.78
0.60
EBITDA Margin
8.74
14.95
16.09
19.92
22.37
23.12
NP Margin
3.81
6.32
7.19
8.77
8.36
9.20
ROCE
2.99
5.09
12.71
13.82
13.20
15.40
ROE
6.48
12.44
28.06
25.94
22.92
22.38
Net Sales Growth
-
28.16
155.49
-3.52
12.03
7.97
EBITDA Growth
-
119.28
175.01
19.41
25.85
11.57
PBIT Growth
-
103.65
187.77
21.47
17.76
12.88
PAT Growth
-
110.26
190.32
17.63
6.83
18.75
EPS Growth
-
110.26
190.32
17.63
6.83
18.75
Book Value Growth
-
14.68
42.00
36.14
25.93
25.71
EV/Sales (x) Profitability Ratios (%)
Growth Ratios (%)
Khandwala Research
Visa Steel Limited September 01, 2008
14
Khandwala Securities Limited
INDIA EQUITY RESEARCH
TEL. NO. +91 22 4076 7373
FAX +91 22 4076 7378
Name
Designation
Sectors
E-mail
Ashok Jainani
VP, Head Research
Market Strategy
[email protected]
Dipesh Mehta
Research Analyst
IT, Telecom
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Hatim K Broachwala
Research Analyst
BFSI
[email protected]
Vinay Nair
Research Analyst
Energy
[email protected]
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Research Analyst
Metals, Cement
[email protected]
Harshul Verma
Research Associate
Automobiles, Capital Goods
[email protected]
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Research Associate
Publishing
[email protected]
Lydia Rodrigues
Research Executive
Data Mining
[email protected]
INSTITUTIONAL DEALING
TEL NO. +91 22 4076 7342-47/56
FAX NO. +91 22 4076 73 77-78
Biranchi Sahu
Head
Institutional Equity
[email protected]
Gopi Doshi
Senior Dealer
Institutional Equity
[email protected]
Mayank Patwardhan
Dealer
Institutional Equity
[email protected]
PRIVATE CLIENT GROUP
TEL No. +91 22 4076 7317-21
FAX NO. +91 22 4076 73 77
Sanjay K Thakur
President
Sales & Marketing
[email protected]
Subroto Duttaroy
General Manager
Equity & Portfolio Mgmt. Service
[email protected]
Jagdish R Modi
Manager
Equity & Portfolio Mgmt. Service
[email protected]
BRANCH OFFICE (PUNE) Ajay G Laddha
TEL NO. +91 20 2567 1404/06 Vice President
FAX NO. +91 20 2567 1405 [email protected]
Corporate Office:
Branch Office:
Vikas Building, Ground Floor, Green Street, Fort, MUMBAI 400 023. Tel. No. (91) (22) 4076 7373 Fax No. (91) (22) 4076 7377/78 E-mail: [email protected]
C8/9, Dr. Herekar Park, Off. Bhandarkar Road, PUNE 411 004 Tel. No. (91) (20) 2567 1404/06 Fax. No. (91) (20) 2567 1405 Email: [email protected]
Web site: www.kslindia.com
Important Disclosure The Research team of Khandwala Securities Limited on behalf of itself has prepared the information given and opinions expressed in this report. The information contained has been obtained from sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, KSL or its group companies make no guarantee, representation or warranty, whether express or implied and accepts no responsibility or liability as to its accuracy or completeness of the data being provided. All investment information and opinion are subject to change without notice. Also, not all customers may receive the material at the same time. This document is for private circulation and information purposes only. It does not and should not be construed as an offer to buy or sell securities mentioned herein. KSL shall not be liable for any direct or indirect losses arising from the use thereof and the investors are expected to use the information contained herein at their own risk. KSL and its affiliates and / or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. KSL and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. The value of or income from any investment may be adversely affected by changes in the rates of currency exchange. The recipient means this document strictly for use only. None of the material provided herein may be reproduced, published, resold or distributed in any manner whatsoever without the prior explicit written permission of KSL.
Khandwala Research
Visa Steel Limited September 01, 2008
15
CMP: INR 52
Target Price: INR 71
BSE Sensex
14,565
S&P Nifty
4,360
BSE Metal
12,348
Bloomberg Consensus (BUY/SELL/HOLD)
1/0/0
BSE Code
532721
NSE Code
VISASTEEL
Bloomberg Code
VISA IN
Reuters
VISA.BO 66/31
Equity (INR Mn)
1,100
Market Cap. (INR Mn)
5,709
Shareholding Pattern (%)
Visa Steel’s business is based on a progressive monetising of facilities through marketing intermediates. Each of these intermediates is, by itself, a strong product in a dynamic and supply-starved market, which has provided strong cash flow at very early levels. VISA Steel has faced some delays in commissioning of key facilities due to serious political disturbances in addition to a major contractor resource crunch during setting up its integrated steel plant. The company is setting up an integrated 500,000 tonne special and stainless steel complex in Orissa, where it has already commissioned ancillary facilities like pig iron plant, coke oven batteries & ferro chrome plant, while sponge iron and power plant is near commissioning and revenue generation would start from next quarter onwards.
Investment Rationale:
Foreign
7.27
Institutions
1.49
Corporate
5.06
Promoters
72.73
Public & Others
100.00
Returns
Abs
(%)
Perf
Sensex
BSE Metal
1 Month
-8.87
-10.81
-6.11
Relative to
3 Months
-7.57
3.71
19.43
1 Year
62.19
67.11
55.42
Relative Price Performance Visa
BSE Metal
Sensex
Strong Volume Growth Visa Steel is at inflection point, where it is poised to achieve marvelous volume growth in coming years. In addition to the 50,000 tonne ferro chrome plant commissioned in fourth quarter of last year, a 50 MW captive power plant and 300,000 tonne sponge iron plant have commissioned during the quarter. Apart from this, its 225,000 tonne pig iron facility has also started and stabilized after its planned closure for a refractory relining, which would start contributing towards financial performance from Q2FY09. Further, the steel melt shop, rolling mills and additional 25 MW power plant are expected to generate revenues and profits from financial year FY11 onwards.
13.46
Total
Substantial margin improvement The company is likely to register EBITDA margin of 19.9% in FY10 and 22.4% in FY12 from 15.0% during FY08. Focus on value addition along with lower power cost due to captive power plant would lead this margin improvement. Net profit margin would also improve to 8.1% and 9.0% in FY10 and FY12 respectively from 6.1% during FY08 on back of economic of scale and strong EBITDA performance.
200
175
150
125
100
Analyst: Giriraj Daga Email: [email protected]
Khandwala Securities Limited
Jul-08
Aug-08
Jun-08
Apr-08
Source: Comline Products
May-08
Mar-08
Jan-08
Feb-08
Dec-07
Oct-07
Nov-07
Sep-07
75 Aug-07
Initiating Coverage
52 Wk High/Low (INR)
BUY
Alliance with Baosteel VISA Steel has signed a JV agreement with Baosteel Resources Co. Ltd. a China based company and VISA Comtrade AG, a Switzerland based company, to seize the opportunity in value addition of chrome ore into ferro chrome. The JV Company, VISA BAO Limited, will set up a 100,000 tonne ferro chrome plant in Orissa having a capex of Rs 2,600 mn and a debt equity ratio of 65:35. VISA Steel, Baosteel and VISA Comtrade AG each respectively hold 51%, 35% and 14% stake in VISA BAO Limited.
For private circulation only Vikas Building, Green Street, Fort, Mumbai 400 023. Please read the Important Disclosure at the end of this report. Tel No. +91 22 4076 7373 Fax No. +91 22 4076 7377 Our Research Reports can be accessed on: www.bloomberg.net (KHDS), www.capitaliq.com, www.thomsonreuters.com, www.kslindia.com, www.moneycontrol.com, www.securities.com This report is a part of intellectual property of Khandwala Securities Limited; any query on this report may be directed to Head of Research at [email protected]
Khandwala Securities Limited
Financial Summary (INR Mn)
FY07
FY08
FY09E
FY10E
FY11E
FY12E
Net Sales
5,312
6,808
17,393
16,781
18,800
20,298
EBITDA
464
1,018
2,799
3,342
4,206
4,693
PAT
205
431
1,253
1,474
1,574
1,869
EPS (INR)
1.87
3.92
11.39
13.40
14.31
16.99
27.66
13.15
4.53
3.85
3.61
3.04
P/E
Valuation
Visa Steel focus on integration has yielded in multiple returns for the company, apart from augmenting operating metrics and ensuring self-sufficiency in raw material and intermediates. This has also allowed facilities to be fully tested and de-bottlenecked in readiness for the final production at superior levels of capacity utilization. Therefore, we expect company to achieve capacity utilization of over 90% across the product categories within 2-3 year of operation. At Rs 54, the company is trading at P/E of 4.5x and 3.9x for FY09 and FY10 earnings, while on EV/EBITDA basis, it is trading at 4.6x and 3.9x for FY09 and FY10 respectively. Our target price of Rs 71 is based on average of EV/EBITDA of 4.5x FY10, which provide 37% return from current price.
Sensitivity Analysis:
FY10 EPS level at different realization and cost
Cost
Realization -5.0%
-3.0%
0.0%
3.0%
5.0%
-5.0%
11.63
13.58
16.52
19.45
21.41
-3.0%
10.38
12.33
15.27
18.20
20.16
0.0%
8.51
10.46
13.40
16.33
18.29
3.0%
6.63
8.59
11.52
14.46
16.41
5.0%
5.38
7.34
10.27
13.21
15.16
Upside to Valuation
Early commissioning of steel plant
Firm coke, ferro chrome and steel prices
Better than expected progress in greenfield projects
Downside to Valuation
Khandwala Research
Delay in plant commissioning
Steady decline in product prices
Visa Steel Limited September 01, 2008
2
Khandwala Securities Limited
T ABLE Sl No
OF
C ONTENT
Descriptions
Pg No
1.
Investment Rationale
4
2.
SWOT Analysis
6
3.
Financial Analysis
7
4.
Industry Overview
8
5.
Company Overview
10
6.
Financial Summary
11
7.
Income Statement
11
Balance Sheet
12
Cash Flow Statement
13
Key Ratios
14
Disclaimer
Khandwala Research
15
Visa Steel Limited September 01, 2008
3
Khandwala Securities Limited
Investment Rationale Steadily Commissioning Capacities
Visa Steel is at inflection point, where it is poised to achieve marvelous volume growth in coming years. In addition to the 50,000 tonne ferro chrome plant commissioned in third quarter of last year, a 50 MW captive power plant and 300,000 tonne sponge iron plant is near completion. Apart from this, its 225,000 tonne pig iron facility has also started and stabilized after its planned closure for a refractory relining, which would start contributing towards financial performance from Q2FY09. Further, the steel melt shop, rolling mills and additional 25 MW power plant are expected to generate revenues and profits from financial year FY11 onwards. The company took various de-bottlenecking processes in last one year, where pig iron has restarted from second quarter of current year and coke production has reached 90% capacity utilization levels after installing the second pusher car during March 2008. Debottlenecking the Coke Oven and the Blast Furnace led to the creation of multiple revenue streams from which the Company will derive full benefits in the coming year. Apart from these, Visa Steel has entered into an MoU with the Government of Chhattisgarh for setting up a 2.5 MT integrated steel plant along with other facilities with a proposed investment of Rs 47,500 mn. However, it would take around 5-7 years to commission these units and become revenue generative. The steel industry is on an upswing, driven by high coking coal and iron ore prices. Indian steel prices would continue to remain firm due to wide difference between domestic & international prices and higher input prices. With pig iron, sponge iron, ferro chrome and coke prices at all time record high levels, Visa Steel would benefit significantly given that their capacities are coming on stream at the best possible time. Production 5
Lamcoke
In Lakh Tonne
Pig Iron
Ferro Chrome
Sponge Iron
4
3
2
1
0 FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
Source: Company, Khandwala Research
A strategic alliance with Baosteel
China accounts for 25% of world’s stainless production, thereby emerging as a large buyer of chrome ore and ferro chrome. Baosteel, one of the largest stainless steel producers in China has been a buyer of VISA Comtrade’s chrome ore for several years. VISA Steel signed a JV agreement with Baosteel Resources Co. Ltd., a China based company and VISA Comtrade AG, a Switzerland based company, to seize the opportunity in value addition of chrome ore into ferro chrome. The JV company, VISA BAO Limited, will set up a 100,000 tonne ferro chrome plant in Orissa having a capex of Rs. 2,600 mn and a debt equity ratio of 65:35.
Khandwala Research
Visa Steel Limited September 01, 2008
4
Khandwala Securities Limited
VISA Steel, Baosteel and VISA Comtrade AG each respectively hold 51%, 35% and 14% stake in VISA BAO Limited. The groundwork for this project would begin by Oct 2008. On commissioning, VISA Steel and VISA BAO put together will be one of the largest ferro chrome producers in India. A majority of the total ferro chrome production will be sold to Baosteel. Baosteel’s immense market credibility and the advantage of having a ready customer for enhanced production will help improve VISA Steel’s profitability. India is already a major exporter of chrome ore and chrome concentrates to China with over 1 MT exports over last 4 years. The Government of India encourages value addition of ore within India by imposing export tax on exports of chrome ore and concentrates. Over time, India shall emerge as a large exporter of ferro chrome instead of chrome ore. Securing Raw Material
Captive Power Supply
Khandwala Research
To enhance the competitiveness, the company is integrating its operations backwards into the mining of iron ore, chrome ore and coal. Its several initiatives towards this include:
Developing chrome ore deposits in Orissa through its subsidiary, Ghotaringa Minerals Ltd, while additional chrome ore is procured from Industrial Development Corporation of Orissa Ltd (IDCOL) and Orissa Mining Corporations (OMC).
The company is procuring iron ore supplies from OMC.
Visa Steel has also been jointly allocated the Patrapada coal block in Orissa.
It also has active plans to set up integrated steel plants in other mineral rich states such as Chhattisgarh and Jharkhand.
These mines are situated at very prominent location, which provide locational and logistic advantages
Talcher (Orissa) coalfields are situated 110 kms away.
The Daitari iron ore mines are located 30 kms away while the Keonjhar and Barbil mines are 100 - 150 kms away.
The Sukinda chrome ore mines are 35 kms away.
The Paradip port is located within 120 kms away from the Plant.
Ferro chrome production is a power-intensive process, as is the entire steel manufacturing chain. Visa Steel is in the process of setting up a 75 MW captive power plant in two phases. The first phase of this project is the commissioning of a 50 MW Power Plant by utilizing waste heat generated by the Coke Oven, Blast Furnace and DRI Plant followed by an additional 25 MW Power Plant using coal and char. Visa Steel has also commissioned the 220 kv power transmission line to facilitate stable supply of power at the Kalinganagar facility. These steps will offer the twin benefits of assured power supply and steady cash flow by using captive power. The company will bolster its profit margins by leveraging a substantial cost saving compared to existing costs.
Visa Steel Limited September 01, 2008
5
Khandwala Securities Limited
SWOT Analysis Strengths
Weakness
It’s business is based on a progressive monetising of facilities through marketing intermediates
Robust volume growth on back of very promising expansion plans
Dependence from external sources for iron ore, thermal coal and imported coking coal, where prices have moved unprecedented trajectory levels
Delay in implementation of project due to nonavailability of skilled manpower and contractor workforce may lead to opportunity loss in revenue generation and rise in costs
The company has locational advantages, as it is raw material sources are located in near by areas only
The company is integrating its operation with either long-term contracts or captive mines for raw materials
JV with Baosteel will help the company to gain technical and financial strength
Opportunities
Threats
Strong Economy growth (second fastest growing Economy after China)
Booming infrastructure sector (Roads, Ports, Airports, SEZs, Power)
Steel prices are running at unprecedented high levels due to steep rise in raw material cost, which may impact the demand going forward
Strong demand in automobile sector, consumer durables sector and engineering goods sector
Bureaucratic nature of Government - Socio-Political interventions (in leasing mines)
High interest rates could affect programmes (Higher cost of Finance)
High cost of Energy
Deficit infrastructure
Robust demand in construction and retail industry
Low per capita steel consumption offers a higher growth
Rich Geological Resource base
Growing Skilled and Technical Human Capital.
Khandwala Research
Visa Steel Limited September 01, 2008
expansion
6
Khandwala Securities Limited
Financial Analysis Sales and Sales Net Change
EBIDTA and EBIDTA Margin 200%
5,000
20,000
150%
4,000
20%
15,000
100%
3,000
15%
10,000
50%
2,000
10%
5,000
0%
1,000
5%
25,000
(INR Mn)
Net Sales
% Chg
FY08
FY09E
FY10E
FY11E
2,000
25%
EBITDA Margin
0% FY07
FY12E
PAT and PAT Margins
EBITDA
0
-50% FY07
(INR Mn)
FY08
FY09E
FY10E
FY11E
FY12E
Networth, Debt and Debt-Equity Ratio
(INR Mn)
PAT
12.0%
PAT Margin
(INR Mn)
10,000
Networth
Debt
Debt-Equity
2.5
1,600
10.0%
8,000
2.0
1,200
8.0%
6,000
1.5
800
6.0%
4,000
1.0
400
4.0%
2,000
0.5
0
0
2.0% FY07
FY08
FY09E
FY10E
FY11E
0.0 FY07
FY12E
EPS and CEPS
FY08
FY09E
FY10E
FY11E
FY12E
Book Value
35 (INR)
EPS
70
CEPS
(INR)
28 55
21 40 14 25 7
10
0 FY07
FY08
Khandwala Research
FY09E
FY10E
FY11E
FY12E
FY07
Visa Steel Limited September 01, 2008
FY08
FY09E
FY10E
FY11E
FY12E
7
Khandwala Securities Limited
Industry Overview China Steel Production
China Steel Export
China steel production is rising at a very steady pace and this would continue to do so albeit some lower rate. The much hyped Olympic is over and we believe that fear of steel consumption slow down is not real since countries development are not based on single event.
China steel exports increased at a rapid pace in last couple of years despite putting curbs on steel exports. We believe, Government effort of closing in-efficient steel mills and encourage value added steel exports would curtail any steel dumping in global market.
50
8
Mn Tonne
Mn Tonne
40 6 30 4 20 2 10
Jul-08
Jan-08
Apr-08
Jul-07
Oct-07
Apr-07
Jan-07
Jul-06
Oct-06
Apr-06
Jan-06
Jul-05
Oct-05
Jan-05
Apr-05
Jul-04
Oct-04
Jan-04
Jul-08
Jan-08
Apr-08
Jul-07
Oct-07
Jan-07
Apr-07
Jul-06
Oct-06
Jan-06
Apr-06
Jul-05
Oct-05
Jan-05
Apr-05
Oct-04
Jul-04
Jan-04
Apr-04
Apr-04
0
0
Source: Bloomberg, Khandwala Research
Source: Bloomberg, Khandwala Research
China Coke Production
China Coke Export
China coke production has also kept strong pace along with steel production and increase multifold during last five years on back of unquenchable demand and robust prices.
China coke exports have remained stagnated during last five years on account of stricter Government norms for coke exports. Recently China increased its exports duty from 25% to 40% to preserve natural resources for its own development.
30
Mn Tonne
2.5
25
Mn Tonne
2.0
20 1.5 15 1.0 10 0.5
5
Khandwala Research
Jul-08
Jan-08
Apr-08
Oct-07
Jul-07
Jan-07
Apr-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Jan-05
Apr-05
Oct-04
Jul-04
Apr-04
Jul-08
Apr-08
Jan-08
Jul-07
Oct-07
Apr-07
Jan-07
Jul-06
Oct-06
Jan-06
Apr-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Jan-04
Apr-04
Source: Bloomberg, Khandwala Research
Jan-04
0.0
0
Source: Bloomberg, Khandwala Research
Visa Steel Limited September 01, 2008
8
Khandwala Securities Limited
China Steel Export Prices
China Coke Export Prices
China export prices recorded over 100% jump in last 15 months before seeing some seasonal downturn. We believe, prices will bounce back after seasonal correction and any meaningful decline would only happen after raw material cool off.
Coke export prices have jumped extraordinary during last 18 months due to export duty on coke export and unprecedented rise in coking coal prices. Prices may rise USD 100/tonne from hereon following recent increase in export duty.
1,200
USD Per Tonne
750
USD Per Tonne
600 1,000 450 800 300 600 150
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Jan-02
0
400
Source: Bloomberg, Khandwala Research
Source: Bloomberg, Khandwala Research
India Steel Production
India Steel Prices
India steel production saw a rapid jump in last one year and this would continue to rise following new capacity addition from Tata and JSW.
Indian steel prices have essentially followed global prices expect last few months due to Government effort for fighting inflation. Therefore, Indian steel producer would be able to withstand the recent global seasonal price correction without much impact.
5
50,000
Mn Tonne
INR Per Tonne
4 40,000 3 30,000 2 20,000 1
0
Source: Bloomberg, Khandwala Research
Khandwala Research
Jan-08
May-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
Sep-02
May-02
Jan-02
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Jul-04
Oct-04
Apr-04
Jan-04
10,000
Source: Bloomberg, Khandwala Research
Visa Steel Limited September 01, 2008
9
Khandwala Securities Limited
Company Overview Visa Steel is part of the VISA Group; a conglomerate with decade-long experience in global minerals and metals industry. Its business model is based on a progressive monetizing of facilities through marketing intermediates. Each of these intermediates is, by itself, a strong product in a dynamic and supply-starved market. Along the way, opportunities that are adjunct to the steel production value chain, among them the cogeneration of power from waste heat and the supply of value added products, are also captured. At Visa Steel, integration is therefore an act that yields multiple returns. Besides augmenting operating metrics, it ensures self-sufficiency in raw material and intermediates. It also allows facilities to be fully tested and de-bottlenecked in readiness for the final production at superior levels of capacity utilization. Integrating the value chain, acts as a value protector by insulating against supply side interruptions and price fluctuations. For Visa Steel, value chain integration is the way forward in realizing the vision of becoming a dominant special and stainless steel player in India. The company has faced serious political disturbances in addition to a major contractor resource crunch, which together have delayed the commissioning of key facilities in setting up its Integrated Steel Plant. However, company’s facilities have been steadily coming on stream with some minor delays. The company is in the process setting up a 0.5 MT integrated steel plant in Orissa. It has production facilities in Kalinganagar and Golagaon, located in the eastern Indian state of Orissa. The integrated special and stainless steel plant at the Kalinganagar industrial complex and Golagaon includes the following facilities:
Plant
Capacity
Remarks
Kalinganagar Industrial Pig Iron Plant
225,000 tonne
Operational
Coke Oven Plant
400,000 tonne
Operational
Ferro Chrome Plant
50,000 tonne
Operational
Sponge Iron Plant
300,000 tonne
Near completion
Steel Melt Shop
500,000 tonne
Q1FY2011
Bar & Wire Rod Mill
500,000 tonne
Power Plant
75 MW
Q1FY2011 50 MW near completion during current quarter, 25 MW in Q1FY2011
Golagaon Operations
Khandwala Research
Chrome Ore Beneficiation Plant
100,000 tonne
Operational
Chrome Ore Grinding Plant
100,000 tonne
Operational
Visa Steel Limited September 01, 2008
10
Khandwala Securities Limited
Financial Summary Income Statement Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
5,618
7,002
17,931
17,300
19,381
20,925
Sales Less: Excise
306
195
538
519
581
628
5,312
6,808
17,393
16,781
18,800
20,298
67
20
20
20
20
20
5,379
6,828
17,413
16,801
18,820
20,318
Raw Material Consumed
2,139
1,870
11,607
10,406
9,160
9,160
Purchase of Finished Goods
2,281
2,977
811
479
202
90
Net Sales Other Income Total Expenditure
Employees' Remuneration and Benefits
51
140
385
492
536
543
Power & Fuel
55
234
385
443
1,172
1,450
Other Expenditure
322
569
1,406
1,619
3,524
4,362
Total Expenditure
4,848
5,790
14,594
13,439
14,593
15,605
EBITDA
464
1,018
2,799
3,342
4,206
4,693
8.7%
15.0%
16.1%
19.9%
22.4%
23.1%
Depreciation
98
183
408
439
788
862
Miscellaneous Expenditure written off
27
27
26
26
26
-
407
829
2,385
2,897
3,412
3,851
EBITDA Margin (%)
PBIT Interest and Finance PBT Current Tax FBT Deferred Tax
64
157
468
640
1,000
992
343
671
1,917
2,257
2,412
2,859
39
84
240
282
301
357
5
5
13
16
18
18
94
151
412
485
519
615
Total Tax
138
240
664
784
838
990
Profit After Tax
205
431
1,253
1,474
1,574
1,869
Khandwala Research
Visa Steel Limited September 01, 2008
11
Khandwala Securities Limited
Balance Sheet Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Capital
1,100
1,100
1,100
1,100
1,100
1,100
Reserves and Surplus
2,066
2,370
3,365
4,581
5,769
7,252
Net Worth
3,166
3,470
4,465
5,681
6,869
8,352
Loan funds - Secured loans
4,986
6,988
7,800
8,000
10,000
8,000
198
349
761
1,247
1,765
2,380
8,350
10,807
13,026
14,928
18,634
18,732
2,663
4,272
9,712
10,712
19,712
21,018
SOURCES OF FUNDS Shareholders' Funds
Deferred Tax Liability (Net) TOTAL APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation
170
359
767
1,206
1,995
2,856
Net Block
2,493
3,913
8,945
9,506
17,718
18,162
Capital Work-in-Progress
3,727
6,046
4,356
6,506
1,506
400
Total Fixed Assets
6,220
9,959
13,301
16,012
19,223
18,562
9
9
9
9
9
9
1,195
2,788
3,985
3,888
4,213
4,549
Investments Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Deposits Loans and Advances
414
963
2,241
2,163
2,423
2,616
1,728
857
700
755
1,041
1,593
41
19
19
19
19
19
465
975
1,255
1,384
1,454
1,507
3,843
5,603
8,201
8,209
9,150
10,284
1,825
4,709
8,279
9,071
9,362
9,736
1
134
257
257
386
386
1,826
4,843
8,536
9,328
9,748
10,122
2,017
760
(336)
(1,119)
(598)
162
Less: Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure TOTAL
Khandwala Research
105
78
52
26
0
0
8,350
10,807
13,026
14,928
18,634
18,732
Visa Steel Limited September 01, 2008
12
Khandwala Securities Limited
Cash Flow Statement Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
(INR Mn)
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
343
671
1,917
2,257
2,412
2,859
Depreciation & Amortization
98
183
408
439
788
862
Miscellaneous Expenditure Written Off
27
27
26
26
26
-
Other
49
139
-
-
-
-
517
1,019
2,351
2,722
3,226
3,721
Inventories
(44)
(1,552)
(1,196)
97
(326)
(336)
Sundry Debtors
(25)
(572)
(1,278)
79
(260)
(193)
Loans and Advances
(189)
(513)
(280)
(129)
(70)
(53)
Trade and Other Payables
(419)
2,715
3,570
792
291
375
Cash generated from Operations
(161)
1,097
3,167
3,561
2,862
3,514
-
-
(134)
(257)
(257)
(386)
(15)
(55)
(252)
(298)
(319)
(375)
(176)
1,042
2,781
3,005
2,285
2,752
Purchase of Fixed Assets
(801)
(1,411)
(5,440)
(1,000)
(9,000)
(1,306)
Capital Work in Progress
(2,702)
(2,361)
1,690
(2,150)
5,000
1,106
Cash Flow from Operating Activities: Net Profit Before Tax Adjustments for:
Operating Profit before Working Capital changes Changes in Working Capital
Dividend Paid Income Taxes paid during the year Net Cash generated from Operating Activities Cash Flow from Investing Activities:
Other Net Cash used in Investing Activities
110
209
-
-
-
-
(3,392)
(3,562)
(3,750)
(3,150)
(4,000)
(200)
2,864
2,774
812
200
2,000
(2,000)
Cash Flow from Financing Activities: Proceeds from Long Term Borrowings
55
(1125)
-
-
-
-
Net Cash used in Financing Activities
Other
2,809
1,649
812
200
2,000
(2,000)
Net increase in Cash and Cash Equivalents
(759)
(871)
(157)
55
285
552
Cash and Cash Equivalents at the beginning of the year
2,487
1,728
857
700
755
1,041
Cash and Cash Equivalents at the end of the year
1,728
857
700
755
1,041
1,593
Khandwala Research
Visa Steel Limited September 01, 2008
13
Khandwala Securities Limited
Key Ratios Descriptions
FY2007
FY2008
FY2009E
FY2010E
FY2011E
FY2012E
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
1.87
3.92
11.39
13.40
14.31
16.99
Financial Ratios EPS (INR) CEPS (INR) Book Value (INR) Dividend Per Share (INR)
3.85
7.20
19.08
22.04
26.43
30.42
18.78
21.54
30.59
41.65
52.45
65.93
-
1.00
2.00
2.00
3.00
3.00
1.57
2.01
1.75
1.41
1.46
0.96
P/E (x)
27.66
13.15
4.53
3.85
3.61
3.04
P/CEPS (x)
Debt-Equity (x) Valuation Ratios
13.40
7.17
2.70
2.34
1.95
1.70
Price/Book Value (x)
2.75
2.40
1.69
1.24
0.98
0.78
Market Cap/Sales (x)
1.07
0.83
0.33
0.34
0.30
0.28
EV (INR Million)
8,934
11,807
12,776
12,921
14,635
12,083
EV/EBITDA (x)
19.25
11.60
4.56
3.87
3.48
2.57
1.68
1.73
0.73
0.77
0.78
0.60
EBITDA Margin
8.74
14.95
16.09
19.92
22.37
23.12
NP Margin
3.81
6.32
7.19
8.77
8.36
9.20
ROCE
2.99
5.09
12.71
13.82
13.20
15.40
ROE
6.48
12.44
28.06
25.94
22.92
22.38
Net Sales Growth
-
28.16
155.49
-3.52
12.03
7.97
EBITDA Growth
-
119.28
175.01
19.41
25.85
11.57
PBIT Growth
-
103.65
187.77
21.47
17.76
12.88
PAT Growth
-
110.26
190.32
17.63
6.83
18.75
EPS Growth
-
110.26
190.32
17.63
6.83
18.75
Book Value Growth
-
14.68
42.00
36.14
25.93
25.71
EV/Sales (x) Profitability Ratios (%)
Growth Ratios (%)
Khandwala Research
Visa Steel Limited September 01, 2008
14
Khandwala Securities Limited
INDIA EQUITY RESEARCH
TEL. NO. +91 22 4076 7373
FAX +91 22 4076 7378
Name
Designation
Sectors
Ashok Jainani
VP, Head Research
Market Strategy
[email protected]
Dipesh Mehta
Research Analyst
IT, Telecom
[email protected]
Hatim K Broachwala
Research Analyst
BFSI
[email protected]
Vinay Nair
Research Analyst
Energy
[email protected]
Giriraj Daga
Research Analyst
Metals, Cement
[email protected]
Harshul Verma
Research Associate
Automobiles, Capital Goods
[email protected]
Sandeep Bhatkhande
Research Associate
Publishing
[email protected]
Lydia Rodrigues
Research Executive
Data Mining
[email protected]
INSTITUTIONAL DEALING
TEL NO. +91 22 4076 7342-47/56
FAX NO. +91 22 4076 73 77-78
Biranchi Sahu
Head
Institutional Equity
[email protected]
Gopi Doshi
Senior Dealer
Institutional Equity
[email protected]
Mayank Patwardhan
Dealer
Institutional Equity
[email protected]
PRIVATE CLIENT GROUP
TEL No. +91 22 4076 7317-21
FAX NO. +91 22 4076 73 77
Sanjay K Thakur
President
Sales & Marketing
[email protected]
Subroto Duttaroy
General Manager
Equity & Portfolio Mgmt. Service
[email protected]
Jagdish R Modi
Manager
Equity & Portfolio Mgmt. Service
[email protected]
BRANCH OFFICE (PUNE) Ajay G Laddha
TEL NO. +91 20 2567 1404/06 Vice President
FAX NO. +91 20 2567 1405 [email protected]
Corporate Office:
Branch Office:
Vikas Building, Ground Floor, Green Street, Fort, MUMBAI 400 023. Tel. No. (91) (22) 4076 7373 Fax No. (91) (22) 4076 7377/78 E-mail: [email protected]
C8/9, Dr. Herekar Park, Off. Bhandarkar Road, PUNE 411 004 Tel. No. (91) (20) 2567 1404/06 Fax. No. (91) (20) 2567 1405 Email: [email protected]
Web site: www.kslindia.com
Important Disclosure The Research team of Khandwala Securities Limited on behalf of itself has prepared the information given and opinions expressed in this report. The information contained has been obtained from sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, KSL or its group companies make no guarantee, representation or warranty, whether express or implied and accepts no responsibility or liability as to its accuracy or completeness of the data being provided. All investment information and opinion are subject to change without notice. Also, not all customers may receive the material at the same time. This document is for private circulation and information purposes only. It does not and should not be construed as an offer to buy or sell securities mentioned herein. KSL shall not be liable for any direct or indirect losses arising from the use thereof and the investors are expected to use the information contained herein at their own risk. KSL and its affiliates and / or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. KSL and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. The value of or income from any investment may be adversely affected by changes in the rates of currency exchange. The recipient means this document strictly for use only. None of the material provided herein may be reproduced, published, resold or distributed in any manner whatsoever without the prior explicit written permission of KSL.
Khandwala Research
Visa Steel Limited September 01, 2008
15
