1

Stock Data

Sector Steel

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 558.00/343.10

Volume (2 wk. Avg.) 49000

BSE Code 513446

Market Cap (Rs.In mn) 27018.4

Financials (Rs.in.mn) FY10 FY11E FY12E

Net Sales 14807.1 16435.8 18079.4

EBIDTA 4665.0 5011.8 5527.5

PAT 2659.3 2893.3 3202.4

EPS 50.89 55.36 61.28

P/E 10.16 9.34 8.44

Monnet Ispat Ltd BUY F

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SYNOPSIS

• Monnet has a combined capacity of 860,000 TPA of Sponge Iron, 300,000 TPA of Steel, 60,000 TPA of Ferro Alloys and Power generation facility of 150MW besides running the largest underground coal mine in the country.

• Monnet Ispat Ltd, subsidiary Monnet Power Company Ltd. (MPCL) has executed an agreement with Blackstone Group whereby Blackstone has acquired 12.50% equity in MPCL for an investment of Rs. 275 crores.

• The company is also putting an 80 MW power plant which will take the total capacity of power to 230 MW.

• Monnet Ispat & Energy has signed a US $ 1 million deal with Indian Boxing Federation to become a team and kit sponsor for the next three years.

• Operating profit and PAT of the company

are expected to grow at a CAGR of 11% and

14% over 2009 to 2012E respectively.

1 Year Comparative Graph

BSE SENSEX Monnet Ispat Ltd

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.517.00 Rs.595.00

Share Holding Pattern

Sept 17, 2010

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 517.00 27018.4 53.08 9.74 1.83 50.00

SAIL 203.15 839090.9 15.98 12.71 2.42 26.00

Jindal steel 709.00 661698.6 17.30 40.98 9.82 125.00

JSW Steel 1239.00 231753.3 108.69 11.40 2.47 95.00

Investment Highlights

� Q1 FY11 Results Update

Monnet Ispat, India`s second largest coal-based sponge iron manufacturer has

posted marginal rise of 0.33% in its net profit to stand at Rs 727.1 million for the

June 2010 quarter as against Rs 612.40 million for the same quarter a year ago.

Net sales of the company are surged by 18.03% Rs 4,203.8 million for June 2010

quarter as against Rs.3561.80 million for the same quarter previous year. Total

income is increased by 17.57% to Rs.4224.00 for the quarter ended June 2010.

The EPS of the company is stood at Rs.13.91 for the quarter ended June.

Quarterly Results - standalone (Rs in mn)

As At Jun-10 Jun-09 %change

Net sales 4203.80 3561.50 18.03

PAT 727.10 612.40 18.73

Basic EPS 13.91 12.77 8.96

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� Break up of Expenditure

� Blackstone to Invest INR 2750 Million

Monnet Ispat Ltd, subsidiary Monnet Power Company Ltd. (MPCL) has executed an

agreement with Blackstone Group whereby Blackstone has acquired 12.50% equity

in MPCL for an investment of Rs. 275 crores for its 1050MW power project at Angul

in Orissa. MPCL is a 100% subsidiary of Monnet Ispat & Energy Limited (“MIEL”),

which is India’s second largest manufacturer of integrated coal-based sponge iron.

� Merger with mounteverest trading

Monnet Ispat Ltd has approved the merger of Mounteverest Trading & Investment

Ltd. The swap ratio for the proposed merger shall be two equity shares of Monnet

Ispat & Energy Ltd for every five equity shares of Mounteverest Trading &

Investment Ltd.

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Company Profile

Monnet is an industrial conglomerate born out of a conviction. It is this strength of

conviction that makes us the second largest coal-based Sponge Iron manufacturer

with thriving facilities in Raipur and Raigarh in the State of Chhattisgarh as well as

the largest underground coal mine operators in the country.

Today, Monnet has a combined capacity of 860,000 TPA of Sponge Iron, 300,000 TPA

of Steel, 60,000 TPA of Ferro Alloys and Power generation facility of 150MW besides

running the largest underground coal mine in the country. Pursuing balanced

integration, we have acquired additional coal mining rights at Raigarh. Our

profitability is a result of judicious use of indigenous technology, backward & forward

integration and economies of scale.

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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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 15487.30 14807.10 16435.88 18079.47

Other Income 476.70 214.90 150.43 157.95

Total Income 15964.00 15022.00 16586.31 18237.42

Expenditure -11897.80 -10357.00 -11554.42 -12709.87

Operating Profit 4066.20 4665.00 5031.89 5527.55

Interest -706.00 -665.50 -645.54 -677.81

Gross profit 3360.20 3999.50 4386.35 4849.74

Deprecation -653.00 -712.70 -769.72 -846.69

Profit Before Tax 2707.20 3286.80 3616.64 4003.05

Tax -547.20 -627.50 -723.33 -800.61

Profit After Tax 2160.00 2659.30 2893.31 3202.44

Equity capital 479.70 522.60 522.60 522.60

Reserves 12383.00 15042.30 17935.61 21138.05

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 45.03 50.89 55.36 61.28

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-09 31-Mar-10 30-Jun-10 30-Sep-10E

Description 3m 3m 3m 3m

Net sales 3721.90 4383.90 4203.80 4287.88

Other income 51.30 11.70 20.20 21.21

Total Income 3773.20 4395.60 4224.00 4309.09

Expenditure -2596.60 -3100.20 -2991.10 -3018.66

Operating profit 1176.60 1295.40 1232.90 1290.42

Interest -160.30 -175.10 -143.80 -150.99

Gross profit 1016.30 1120.30 1089.10 1139.43

Deprecation -181.40 -178.20 -181.60 -185.23

Profit Before Tax 834.90 942.10 907.50 954.20

Tax -154.80 -217.40 -180.40 -190.84

Profit After Tax 680.10 724.70 727.10 763.36

Equity capital 479.60 522.60 522.60 522.60

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 14.18 13.87 13.91 14.61

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Key Ratios

Particulars FY09 FY10 FY11E FY12E

No. of Shares(In Million) 47.97 52.26 52.26 52.26

EBITDA Margin (%) 26.26% 31.51% 30.62% 30.57%

PBT Margin (%) 17.48% 22.20% 22.00% 22.14%

PAT Margin (%) 13.95% 17.96% 17.60% 17.71%

P/E Ratio (x) 11.48 10.16 9.34 8.44

ROE (%) 16.79% 17.09% 15.67% 14.78%

ROCE (%) 18.07% 18.24% 17.54% 17.23%

Debt Equity Ratio 1.03 0.89 0.79 0.71

EV/EBITDA (x) 6.1 5.79 5.37 4.89

Book Value (Rs.) 268.14 297.84 353.2 414.48

P/BV 1.93 1.74 1.46 1.25

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Charts:

9

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Outlook and Conclusion

At the current market price of Rs.517.00, the stock is trading at 9.34 x FY11E

and 8.44 x FY12E respectively.

Price to Book Value of the stock is expected to be at 1.46 x and 1.25 x

respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E

is seen at Rs.55.36 and Rs.61.28 respectively.

Operating profit and PAT of the company are expected to grow at a CAGR of

11% and 14% over 2009 to 2012E respectively.

On the basis of EV/EBITDA, the stock trades at 5.37 x for FY11E and 4.89 x for

FY12E.

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.595.00 for Medium to Long term investment.

Industry Overview

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according

to the Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth

largest producer of steel in the world and is likely to become the second largest

producer of crude steel by 2015-16.

Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's

second-largest steel producer by 2012, more than doubling its capacity to 124 million

tonnes (MT) as part of the push being given to assist overall infrastructure

development.

Production

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Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the

Ministry of Steel.

The National Steel Policy 2005 had projected an annual steel consumption growth of 7

per cent based on GDP growth rate of 7-7.5 per cent and production of 110 MT of

crude steel by 2019-2020. Nonetheless, with the current rate of ongoing greenfield and

brownfield projects, the Ministry of Steel has projected that these growth trends are

likely to be exceeded and it is envisaged that in the next five years demand will grow at

higher annual average growth rate of over 10 per cent as compared to around 7 per

cent growth achieved between 1991-92 and 2005-06.

Moreover, according to the ministry, the crude steel production capacity in the country

by 2011-12 will be nearly 124 MT.

According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have

been signed with various states for planned capacity of around 276 MT. Major

investment plans are in Orissa, Jharkhand, Chattisgarh, West Bengal, Karnataka,

Gujarat and Maharashtra.

According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel

production grew at a compounded annual growth rate of 8.6 per cent during 2004-05

and 2008-09.

Consumption

India's steel consumption rose 8 per cent in the year ended March 2010, over the

same period a year ago on account of improved demand from sectors like automobile,

infrastructure and housing. The country’s steel consumption increased to 56.3 MT in

the 12 months to March 2010 from 52.3 MT in the previous year, as per the Ministry

of Steel.

Investments

A host of steel companies have lined up major investment proposals. Furthermore,

with an expanding consumer market, the Indian steel industry is likely to receive huge

domestic and foreign investments.

12

The domestic steel sector has attracted a staggering investment of about US$ 238

billion, according to the Minister of State for Steel, Mr A. Sai Prathap.

This consists of nearly 222 MoUs signed between the investors and various state

governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West

Bengal.

• SAIL is planning to set up a 12-million tonne plant in Jharkhand.

• In December, India’s largest engineering conglomerate Larsen & Toubro (L&T)

and state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a

US$ 373.2 million joint venture for specialised steel and forging products.

• Stainless steel manufacturer and exporter, Varun Industries, is setting up a

US$ 171.8 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.

• Tata Steel has entered into a joint venture with Japan’s Nippon Steel for

production and sales of automotive cold-rolled flat products at Jamshedpur.

The JV is expected to invest US$ 400 million to set up an automobile venture in

India.

• Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11

and plans to increase capacity of its Bellary plant in Karnataka from 7 MT to 10

MT by end of 2010-11.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of

fiscal and administrative steps to contain steel prices. Central value added tax

(CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from

February 2009.

Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4

billion to the infrastructure sector and has increased the allocation for road transport

by 13 per cent to US$ 4.3 billion which will further promote the steel industry.

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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.

14

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