Stock Market Result Update on Electrosteel Castings for 2QFY2012

Stock Market Result Update on Electrosteel Castings for 2QFY2012 with a Buy recommendation and a Target Price of `33 (12 months).

For 2QFY2012, Electrosteel Castings (ECL) reported modest top-line growth; however, the company’s EBITDA and net profit were negatively affected due to higher raw-material and interest costs. We continue to maintain our Buy recommendation on the stock.

Modest sales growth: During 2QFY2012, ECL’s net sales grew by 8.3% yoy to `456cr mainly driven by DI pipes sales volume, which grew to 67,800 tonnes vs. 65,000 tonnes in 2QFY2011. Furthermore, higher realization across product categories aided net sales growth.

Higher input costs and interest expense dent 2QFY2012 profits: During the quarter, raw-material cost as a percentage of sales increased to 59.9% in 2QFY2012 compared to 50.0% in 2QFY2011. As a result, EBITDA margin dipped by 829bp yoy to 10.0% in 2QFY2012 and EBITDA fell by 40.8% yoy to `45cr. Interest expense during the quarter grew by 45.9% yoy to `15cr, while tax rate came in lower at 5.0% vs. 32.0% in 2QFY2011. Consequently, net profit decreased by 49.8% yoy to `19cr.

Outlook and valuation: We maintain our positive stance on the company’s initiatives of venturing into steel making through its associate Electrosteel Steels (ESL). Further, the company’s backward integration initiatives through allocation of coking coal mines are expected to result in cost savings from FY2013. The stockis currently trading at P/BV of 0.5x each for FY2012E and FY2013E. We maintain our Buy recommendation on the stock with an SOTP target price of `33.

Stock Market Result Update on Consolidated Construction Consortium for 2QFY2012

Stock Market Result Update on Consolidated Construction Consortium for 2QFY2012 with a Reduce recommendation and a Target Price of `17 (12 months).

For CCCL the run of dismal performances continue. Though the company’s performance on the revenue front was higher than our expectations; however, it was shocking, to say the least, at the earnings front, due to a substantial dip in EBITDAM and higher than anticipated interest cost. We are revising our estimates further downwards for FY2012 and FY2013 and are also assigning lower target PE multiple (7x from earlier 8x) to factor in the poor performance during the quarter, persistent weakness in business environment and expected poor performance in second half of the fiscal. Hence, we downgrade the stock to Reduce from Neutral with a Target Price of `17.

EBITDAM take a plunge + high interest cost àEarnings in red: For 2QFY2012, CCCL’s top line grew by 9.5% yoy to `535.8cr (`489.5cr), against our estimate of `465.0cr. On the EBITDAM front, the company posted abysmal margin of 1.4% (7.8%), registering a decline of 640bp yoy against our expectation of 261bp. On a sequential basis as well, CCCL’s margin witnessed a 340bp decline. The decline in margin can be attributed to commodity price pressures and increased employee and labor costs. Therefore, on the bottom-line front, the company reported loss of `18.7cr in 2QFY2012 vs. profit of `13.7cr in 2QFY2011, against our expectation of `1.4cr profit, mainly on account of lower margin and higher interest cost (`17.2cr, a jump of 42.1%/11.3% yoy/qoq).

Stock Market Result Update on Blue Star for 2QFY2012

Stock Market Result Update on Blue Star for 2QFY2012 with an Neutral recommendation. 

In 2QFY2012, Blue Star posted a 13.0% yoy decline in revenue to `605cr (`695cr). OPM fell by 742bp yoy and 166bp qoq to 2.3% due to higher raw-material cost and other expenditure. The company reported a loss of `21cr during the quarter. According to management, the current scenario is going to continue for the next five quarters owing to cost overruns. We continue to maintain our Neutral recommendation on the stock.

Top line declines, margin dips significantly: Blue Star reported a 13.0% yoy decline in its top line to `605cr in 2QFY2012. The decline in revenue was on the back of a 19.1% yoy decline in its electromechanical projects and packaged air conditioning systems (EMPPACS) segment to `382cr (`473cr), which accounted for nearly 64% of the company’s total revenue. The segment also reported an EBIT loss of `3cr vs. profit of `43cr in 2QFY2012, negatively affecting margins. Owing to losses in this segment, overall OPM declined by 742bp yoy to 2.3% (9.7%). The company also reported unrealized forex loss of `20cr during
the quarter. The company reported loss of `21cr in 2QFY2012 vs. profit of `39cr in 2QFY2011.

Outlook and valuation: Demand from the key market segments has still not picked up. However, growth in the cooling products segment and DS Gupta remains strong. Overall, management is not very optimistic and expects the current scenario to continue over the next five quarters. Management also expects margin to contract by 3-5% yoy until 1QFY2013. We have revised our estimates downwards and continue to maintain our Neutral recommendation on the stock.