Should you invest in Monnet Ispat or Bhushan Steel?

Should you invest in Monnet Ispat or Bhushan Steel?

COMPARATIVE REPORT

 

Recently two of the steel companies, undergoing proceedings in IBC, have been taken over by two of India’s biggest steel companies. While Monnet Ispat and Energy Ltd. is acquired by JSW Steel Ltd., Tata Steel Ltd. has bought Bhushan Steel Ltd. now Tata Steel BSL Ltd.

The prices of both the companies look very attractive. We have tried to ascertain is it really investment worthy?

Since Monnet Ispat and Energy Ltd. has been acquired by JSW Steel Ltd., so the EBITDA margin of FY20E i.e. 26.61% is based on the EBITDA margin of JSW Steel Ltd. (for the HY ending 30.09.2018).

Similarly for Tata Steel BSL Ltd., EBITDA of Tata Steel Ltd. has been adopted.

This assumption is based on the belief that the operational efficiency of these companies will be at par with their parent companies.

 Comparative Report on Tata Steel BSL Ltd. And Monnet Ispat Energy Ltd. 

 Company Monnet Ispat Energy Ltd.                     Tata Steel BSL Ltd.
Particulars (Rs. In Crores) Q3 FY20E Q3 FY20E
Revenue From Operations (Net) 493.82 1,975.28 4,888.54 19,554.16
Other Income 5.25 21.00 34.18 136.72
Total 499.07 1,996.28 4,922.72 19,690.88
EBITDA Margin (See Note) 5.4%A 26.61%E 20.26%A 36%E
EBITDA 26.85 531.21 997.34 7,088.72
Finance cost 48.97 195.88 788.65 3,154.60
Depreciation & Amortization 55.54 222.16 358.55 1,434.20
EBT -77.66 113.17 -149.86 2,499.92
Less: Tax Expense (30%) 33.95 749.98
EAT -77.66 79.22 -239.56 1,749.94
Weighted average number of equity shares 46.96 46.96 109.34 109.34
EPS -1.65 1.69 -2.19 16.00
Price 34.50 34.50 29.95 29.95
P/E -20.86 20.45 -13.67 1.87

Key Interpretations:

  • The calculations of the FY20E for both the companies is by taking Q3′ FY19 earnings/ sales as a base and annualising them for the next year workings.

The resultant P/E ratio of Tata Steel BSL Ltd. is much more attractive and lower, being just 1.87 than Monnet Ispat and Energy Ltd. P/E of 20.45.

However, this Tata Steel BSL Ltd comes with a contingency that makes it a risky bet. As per the approved resolution plan, Tata Steel has the right to convert loan worth 9,000 crores provided to Tata Steel BSL Ltd., into equity. If this happens, this will result in dilution of equity to a very big extent.

In that case, the entire calculation as above will become irrelevant.

Investors with very high-risk appetite may invest in Tata Steel BSL Ltd.

WORKINGS:

Particulars (Rs. In Crores) JSW Steel TATA Steel
Revenue From Operations 37,558.00 33,734.07
Other Operating Income 1,075.00 573.43
Total 38,633.00 34,307.50
EBT 6,521.00 8,951.61
Finance cost 1,795.00 1,487.28
Depreciation & Amortization 1,677.00 1,910.29
EBITDA 9,993.00 12,349.18
EBITDA Margin 26.61% 36%

 

Assumptions-

  • The EBITDA margin of both the above companies (on a standalone basis) i.e. JSW Steel and Tata Steel is being calculated on the basis of the earnings of the half year ending 30.09.2018.
  • The share price for calculation of P/E is taken as of 30.01.2018 for both the companies.

 

Divakar Jindal
Research Assistant
Green Portfolio private Limited

 

 

 

 

 

 

 

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