20 May 2015
4QFY15 Results Update | Sector:
Equity Shares (m)
M.Cap. (INR b) / (USD
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Free float (%)
579 / 311
TP: INR504 (+39%)
Below est; FAMD & SEA disappoints; Capex discipline is positive
Consolidated EBITDA declined 50% QoQ to INR15.4b. This is 54% below our
estimates due to (1) unanticipated provisioning of INR9.9b (INR1.9b towards DMF
+ INR6b towards translation loss + INR2b receivable w/off in China), (2) loss at
FAMD and (3) squeeze between steel & scrap prices in South East Asia (SEA).
Reported loss after tax of INR57b included INR48b impairments and INR1.3b tax
write back. Adjusted loss after tax was INR8.6b (v/s est. of INR4.6b PAT). During
FY15, there is a total impairment of INR64b on account of Long product UK
(INR28b) and iron ore and coking coal overseas assets. Reported book value has
declined 23% YoY to INR323/share (includes goodwill of INR138/share).
TSI (India business) reported EBITDA of INR16.8b, 18% below estimates largely due
to provisioning of INR2b towards DMF and failed recovery in FAMD. EBITDA per
ton is ~INR7800/t if adjusted for DMF (v/s est. of INR8002/t). We expect royalties
to fall 50% by end of FY16 due to fall in domestic iron ore prices, which will offset
effect of DMF. Realization was in-line. FAMD will not be able to recover 60-70% of
its profits as merchant sale of minerals is not permitted. Consequently, we have
cut TSI EBITDA by 3% to INR147b for FY17. On restart of captive iron ore mining,
iron ore costs will fall and drive of margin recovery for TSI.
TSE deliveries were 5% above estimates, while EBITDA/t was USD44/t. SEA
remains under pressure due to squeeze between steel & scrap prices. The
pressure on margins is likely to continue on competition from China. We have cut
SEA EBITDA by 76% to INR1.8b for FY17.
Target price unchanged:
Consolidated EBITDA is cut by 5% to INR208b for FY17.
Net debt too is cut by 11% to INR743b due to lower capex during FY15-17. SOTP
remains unchanged at INR504/share based on FY17 SOTP. We believe margin
recovery and volume growth in India will drive equity value. Maintain
Avg Val(INR M)/Vol ‘000
Financials & Valuation (INR Billion)
2015 2016E 2017E
BV/Sh. (INR) 185
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
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