1

SYNOPSIS

Monnet Ispat & Energy Limited

engages in the production and sale

of sponge iron, structural steel, and

ferro alloys in India.

During the quarter ended, the

robust growth of revenue is

increased by 1.62% Rs.4271.70

million.

Monnet Ispat has disclosed about

their expansion plan on ongoing 1.5

MTPA intergrated steel plant is per

schedule.

Monnet Global Limited completed

the acquisition of Indonesian Coal

Company – PT Sarwa Sembada

Karya Bumi, at US$ 24 million.

The top line and bottom line of the

company are expected to grow at a

CAGR of 9% and 9% over 2010 to

2013E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 15737.20 4879.10 2850.60 44.31 11.06

FY 12E 17468.29 5396.10 3122.38 48.53 10.10

FY 13E 19389.80 5967.67 3459.24 53.76 9.11

Stock Data:

Sector: Steel

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 682.00/449.00

Volume (2 wk. Avg.) 1944

BSE Code 531446

Market Cap (Rs.In mn) 31526.60

Share Holding Pattern

1 Year Comparative Graph

Monnet Ispat BSE SENSEX

C.M.P: Rs.490.00 Target Price: Rs.559.00 Date: Sep 30th 2011 BUY

Monnet Ispat Ltd Result Update: Q1 FY 12

2

Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Monnet Ispat Ltd 490.00 31526.60 44.38 11.04 1.64 50.00

SAIL 107.00 441952.90 11.05 9.68 1.19 24.00

Jindal steel 519.40 485477.70 22.46 23.13 5.59 150.00

JSW Steel 508.50 135510.20 100.34 6.06 0.83 122.50

Investment Highlights

Q1 FY12 Results Update

Monnet Ispat has reported a rise of 1.62% net sales for the quarter ended June

2011. During the quarter, the company disclosed a Net profit of Rs. 731.50 million

as against of Rs.727.10 million for the quarter ended June 30, 2010. Net sales are

increased by 1.62% to Rs. 4271.70 million from Rs. 4203.80 million in the same

quarter previous year. In the same period, total income of the company was at Rs.

4383.70 million, a rise of 3.78% over the prior year period. Company EPS is stood

at Rs.11.37 for the quarter ended June 30, 2011.

Quarterly Results - Standalone (Rs in mn)

As At Jun-11 Jun-10 %change

Net sales 4271.70 4203.80 1.62

PAT 731.50 727.10 0.61

Basic EPS 11.37 13.91 (18.28)

3

� Break up of expenditure

� Segment wise revenue

segments Q1 FY12 Q1 FY11

steel 3603.8 3070.7

power 720.2 1199.6

unallocated 0 4.5

Total 4324 4274.8

4

� Recommendation of dividend

Monnet Ispat Ltd has recommended a final dividend of Rs. 5.00 per equity share

subject to the approval of the shareholder.

Company Profile

Monnet Ispat & Energy was incorporated on February 1,1990. A Monnet group

company, it is engaged in the business of sponge iron, steel ingot & billets and coal

mining.

Monnet Ispat Ltd has an excellent manufacturing setup for sponge iron, steel billets

& ingots. It also has a coal mining division and has now diversified into power

generation for captive consumption.

The success story of Monnet Ispat Limited started with the commissioning of 1 lac

tonne per annum (TPA) sponge iron plant set up at one-fourth the cost of similar

plants. The indigenous technology used in setting up this plant enables Monnet to

produce sponge iron of excellent Quality matching with the product of other plants

set up using highly capital intensive foreign technology. With the addition of a second

Rotary Kiln, Monnet has ensured augmentation of a capacity to 2.30 lac TPA.

Additionally two rotary kilns each of 35000 TPA were comissioned in second half of

2003.

The plant is located in Raipur, Chattisgarh state, close to the source of its main raw

materials -- iron ore and coal. In future to increase its competitive edge, Monnet has

entered into mining of coal and iron ore from captive mines.

Monnet has come a long way in a very short span of time. It views human resource as

the company's most valuable asset, much more valuable than the other factors of

productions i.e. money, materials and machinery. A product can be duplicated,

technology is available for a price, but human being are non-duplicable. In the 21st

5

century, the human resource is going to be the competitive advantage of any

company, be it in the manufacturing or the service sector. A customer driven

company, we at Monnet, are as much concerned about our external customers as we

are about our internal customers.

Product range of the company includes:

Sponge iron, steel and ferro alloys. In addition, the Group is engaged in mining of

coal and power generation for captive consumption.

Group companies

Monnet Ispat and Energy Ltd

Monnet Overseas Ltd

Monnet Global Ltd

Monnet Daniels Coal Washeries Pvt. Ltd

Monnet Power Company Ltd

Monnet Cement Ltd

PT Monnet Global, Indonesia

Rameshwaram Steel & Power Private Ltd.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Descrption 12m 12m 12m 12m

Net Sales 14807.10 15737.20 17468.29 19389.80

Other Income 214.90 224.50 260.42 286.46

Total Income 15022.00 15961.70 17728.71 19676.27

Expenditure -10357.00 -11082.60 -12332.61 -13708.59

Operating Profit 4665.00 4879.10 5396.10 5967.67

Interest -665.50 -497.70 -547.47 -602.22

Gross profit 3999.50 4381.40 4848.63 5365.46

Depreciation -712.70 -734.80 -793.58 -872.94

Profit Before Tax 3286.80 3646.60 4055.04 4492.52

Tax -627.50 -796.00 -932.66 -1033.28

Profit After Tax 2659.30 2850.60 3122.38 3459.24

Equity capital 522.60 643.40 643.40 643.40

Reserves 15916.90 20257.80 23380.18 26839.42

Face value 10.00 10.00 10.00 10.00

EPS 50.89 44.31 48.53 53.76

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E

Description 3m 3m 3m 3m

Net sales 3471.40 4455.50 4271.70 4357.13

Other income 64.90 64.50 112.00 74.18

Total Income 3536.30 4520.00 4383.70 4431.31

Expenditure -2362.20 -3169.80 -3109.20 -3076.14

Operating profit 1174.10 1350.20 1274.50 1355.17

Interest -53.70 -180.90 -132.00 -139.92

Gross profit 1120.40 1169.30 1142.50 1215.25

Depreciation -188.80 -180.40 -185.90 -191.48

Profit Before Tax 931.60 988.90 956.60 1023.78

Tax -229.80 -223.20 -225.10 -233.42

Profit After Tax 701.80 765.70 731.50 790.35

Equity capital 621.80 643.40 643.40 643.40

Face value 10.00 10.00 10.00 10.00

EPS 11.29 11.90 11.37 12.28

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(In Million) 52.26 64.34 64.34 64.34

EBITDA Margin (%) 31.51% 31.00% 30.89% 30.78%

PBT Margin (%) 22.20% 23.17% 23.21% 23.17%

PAT Margin (%) 17.96% 18.11% 17.87% 17.84%

P/E Ratio (x) 9.63 11.06 10.10 9.11

ROE (%) 16.18% 13.64% 13.00% 12.59%

ROCE (%) 17.13% 11.79% 11.89% 12.01%

Debt Equity Ratio 0.91 1.28 1.17 1.07

EV/EBITDA (x) 5.49 6.46 5.84 5.28

Book Value (Rs.) 314.57 324.86 373.38 427.15

P/BV 1.56 1.51 1.31 1.15

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Charts:

10

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Outlook and Conclusion

At the current market price of Rs.490.00, the stock is trading at 10.10 x FY12E

and 9.11 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.48.53 and Rs.53.76 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 9% and

9% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 5.84 x for FY12E and 5.28 x for

FY13E.

Price to Book Value of the stock is expected to be at 1.31 x and 1.15 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.559.00 for Medium to Long term investment.

Industry Overview

The Indian steel industry has witnessed steady growth, on the back of various

initiatives taken by the Government of India. The soaring demand from different

sectors, such as, infrastructure, real estate and automobile has put the steel industry

in India on the world map.

Economic reforms initiated by the government in 1991 have assisted in the growth of

steel industry. Prior to the reforms, the steel industry was dominated by the public

sector. However, after the reforms this sector became open to private investments and

foreign investments. The 1991 reforms allowed for no licenses to be required for

capacity creation, except for some locations. A lot of new steel plants have been set up

in the country due to huge foreign investments and state-of-the-art technology. Tata

Steel was the first steel plant established in 1907 in India. Some of the other steel

plants in the country include Bhilai Steel Plant at Chattisgarh, Rourkela Steel Plant at

Orissa, Durgapur Steel Plant at West Bengal to name a few. In 2010, India was ranked

as the fourth largest producer of steel by the World Steel Association.

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The Indian steel industry began expanding into Europe during the 21st century. In

January 2007, Tata Steel made a successful US$ 11.3 billion offer to acquire

European steel maker Corus Group PLC. In 2006, Mittal Steel acquired Arcelor for

US$ 38.3 billion to become the world's biggest steel giant.

Some of the growth drivers helping the sector to grow are:

• Abundant availability of iron ore in the country with states such as Orissa,

Jharkhand and Chhattisgarh are rich in iron ore reserves. The National

Minerals Development Corporation (NMDC) plans to expand its iron ore

production capacity from its existing capacity of 30 million tonnes per annum

(MTPA) to 50 MTPA by 2014–15 through the capacity expansion of current

mines as well as by setting up new mines.

• The country has well established facilities for the production of steel.

Market Size

Steel industry is of great significance to the economic growth of the country. India has

been ranked the world’s fifth largest producer of crude steel in 2009 and is projected

to become the world’s second largest producer by 2015–2016, with a production

volume of 54.5 million tonnes (MT). Various states have signed around 222

memorandums of understanding (MoUs), with a projected capacity of about 275.7 MT

and an investment of more than US$ 229 billion.

The steel production capacity is likely to reach 124 MT by 2011–12. In 2008–09, the

installed capacity for crude steel was estimated at 64.4 MT, while production was

estimated at 54.5 MT, resulting in an 85 per cent capacity utilisation. Long-products

constituted 57 per cent of the total finished steel consumption, while the remaining 43

per cent was constituted by flat-products in 2007–08.

The Eleventh Five Year Plan (2007–2012) has allocated investments worth US$ 490

billion for the infrastructure sector, comprising power, roads, highways, railways,

ports, airports, mining and irrigation. Steel giants such as JSW Steel and Tata Steel

are investing to enhance the capacities of products such as TMT bars (rebars) and

many more.

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Investments

• Tata Steel plans to set up a steel plant at Kalinga Nagar, Orissa, which will

focus entirely on flat steel products. The first phase is expected to be

commissioned by February 2014. The first phase will see an investment of up to

Rs 25,000 crore (US$ 5.631 billion), of which the steel maker has already

invested over Rs 10,000 crore (US$ 2.252 billion).

• Recently South-Korean steel company Posco, got permission from the Ministry

of Environment and Forest to set up a steel project worth US$ 12 billion in

Orissa.

• Bhilai Steel Plant (BSP) the sole producer of rails in India has recently received

another order for exporting rails to Sri Lanka. The order is of about 14,000

tonnes for the UIC-60 grade of rails. Earlier, the company had received an order

to supply 6,500 tonnes of rails to Sri Lanka.

• RINL, the corporate entity that runs the Vizag steel plant, has inaugurated a

series of auxiliary units to expand the capacity of the plant to 6.3 MT The

project has been executed by Instrumentation Ltd, Kota and associates at a

cost of around Rs 10 crore (US$ 2.25 million).

• Varia Engineering Works Pvt Ltd, Ahmedabad-based rolling mills

manufacturing company, is setting up India's first 6-stand continuous cold

rolling mill for manufacturing stainless steel.

• Tata Steel is planning to set up six MTPA plant at Kalinga Nagar, Orissa, which

will produce flat products, catering to the needs of the automotive industry and

white goods. Phase-I of the plant, at an investment of Rs 25,000 crore (US$

5.60 billion) is expected to be commissioned by January-February 2014.

Government Initiatives

• The Indian Government has laid more importance on infrastructure

development in the Union Budget 2011. This would help in development of

highways, ports, power projects, bridges and others, which will therefore

increase the demand for steel.

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• With effect from May 24, 1992 steel industry was incorporated in the list of

‘high priority’ industries for automatic approval for foreign equity investment up

to 51 per cent. This limit has since been increased to 100 per cent.

• Import duties on key steel-making raw materials, comprising of mineral

products, ores and concentrates have seen noteworthy reductions in successive

budgets during the last few years.

• The government introduced special economic zones (SEZs) in June 2005, with

the plan of creating internationally competitive regions. Steel plants operating

in SEZs receive some advantages like tax holiday; they can freely source inputs

domestically or externally without any specific approval or duty payable.

Indian Steel Industry: Road Ahead

The Indian crude steel production will grow at a compound annual growth rate (CAGR)

of around 10 per cent during 2010-2013, according to a research report by RNCOS

titled, “Indian Steel Industry Outlook to 2012.”Additionally, various initiatives have

been taken by the Government to boost economic growth, by injecting funds in

industries such as construction, infrastructure, automobile, and power. This will

provide an impetus for growth for the steel industry in future. The report also states

that steel consumption in India is expected to grow considerably in coming years.

Another report by Global Consultancy firm Ernst & Young states that India would

have annual production capacity of 101 MT in 2011-12.

Attracted by the growth prospective of the Indian steel industry, numerous global steel

players have been planning to enter the market or have announced their expansion

plans. For instance, ArcelorMittal and POSCO have planned mega Greenfield projects

at various locations in India.

Additionally, few other global players have entered into strategic partnerships or joint

ventures with Indian steel majors to capitalise on their existing client base in the

region.

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

16

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