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Please refer to important disclosures at the end of this report 1

351 251 39.6 337 4.1

EBITDA 72 35 104.3 58 24.7

EBITDA margin (%) 20.6 14.1 650bp 17.2 340bp

Source: Company, Angel Research

For 2QFY2013, Sarda Energy Minerals Ltd (SEML) reported a strong growth in

profitability backed by higher volumes and better realizations across its products.

During 2QFY2013, SEMLs net sales

grew by 39.6% yoy to `351cr due to rise in steel segment volumes. Ferro Alloy

sales volumes grew by 3.8% yoy to 17,068 tonne and ferro alloy realization

improved by 19.3% yoy to `64,691/tonne. However, billets sales volume

decreased by 32.4% yoy to 6619 tonne. Pellet production increased significantly

to 126,973 tonne (compared to 34,081 tonne in 1QFY2013).

The companys EBITDA increased by 104.3%

yoy to `72cr due to a strong profitability performance from the ferro alloy

segment and also the steel business. The ferro alloy segments EBIT increased

81.4% yoy to `19cr mainly due to increase in realizations. The EBITDA margins

rose by 650bp yoy to 20.6%. However, the companys interest costs increased by

238.0% yoy to `18cr which led to the net profit rising by only 19.6% yoy to `28cr.

We believe that SEML is well poised to benefit from

a) backward integration into coal and iron ore, b) commercial production of

pellets and c) increased power and ferro alloy production. Moreover, firm sponge

iron and pellet prices should lead to higher capacity utilization in FY2013 and

FY2014, thereby leading to higher sales volumes.

% chg 67.4 25.7 31.1 3.6

% chg 133.3 19.4 89.3 5.5

OPM (%) 13.4 12.5 17.6 17.2

P/E (x) 11.0 9.2 4.9 4.6

P/BV (x) 0.7 0.6 0.5 0.5

RoE (%) 7.9 6.9 11.5 11.0RoCE (%) 5.0 4.5 11.9 10.9

EV/Sales (x) 1.0 0.8 0.7 0.6

EV/EBITDA (x) 7.7 6.6 3.8 3.7


CMP `132

Target Price `153

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr) 632

Bloomberg Code SEML@IN

Shareholding Pattern (%)

Promoters 66.5

MF / Banks / Indian Fls 7.2

FII / NRIs / OCBs 6.5Indian Public / Others 19.8

Abs. (%) 3m 1yr 3yr

Sensex 7.5 3.5 15.9

SEML 14.4 12.8 (26.1)

10

18,431

5,598

SAEM.BO

474

1.3

154/72

14,652

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Tel: 022- 39357600 Ext: 6821

E-mail: [email protected]

Tel: 022- 39357600 Ext: 6841

[email protected]

Performance highlights

2QFY2013 Result Update | Steel

October 30, 2012

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Sarda Energy| 2QFY2013 Result Update

October 30, 2012 2

Exhibit 1:

Raw material 215 163 31.7 200 7.3 415 333 24.5% of net sales 61.2 65.0 59.4 60.3 66.0

Staff cost 12 10 23.1 12 (0.3) 24 19 25.4

% of net sales 3.4 3.8 3.5 3.4 3.7

Other expenditure 54 71 (23.9) 71 (24.2) 126 141 (10.7)

% of net sales 15.4 28.3 21.2 18.3 27.8

Total expenditure 281 244 15.1 283 (0.9) 564 493 14.5

% of net sales 80.0 97.1 84.1 82.0 97.5

OPM (%) 20.0 14.1 15.9 18.0 14.2

EBITDA margins (%) 20.6 14.1 17.2 18.9 14.2

Interest 18 5 238.0 19 (6.9) 37 11 237.0

Depreciation 16 15 7.2 16 (0.6) 32 29 8.7

Other income 3 4 (17.4) 7 (55.6) 10 6 63.3

Exceptional items - (33) - - - - (36) -

% of net sales 11.8 (5.5) 8.8 10.3 0.3

Tax 14 (4) 9 49.4 23 0 4,875.8

% of PBT 33.5 29.4 31.5 32.7 28.9

% of net sales 7.9 9.2 6.0 6.9 7.4


Exhibit 2:Quarterly production volumeSponge iron 59,353 51,466 57,995 61,914 56,886 60,238 66,382 68,811 72,667

Billets+ ingots 23,864 26,624 28,133 23,425 24,999 16,433 29,812 30,093 24,243

Ferro alloys 15,994 16,195 14,580 13,876 15,878 17,798 16,819 16,035 17,068

Power (mn units) 104 112 148 140 132 155 149 145 143

Pellet 18,741 45,848 54,464 56,144 71,497 126,899 93,062 34,081 126,973Wire rods 4,003 12,899 23,355 9,979 21,186 22,254 32,297 29,148 27,587


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October 30, 2012 3

Exhibit 3:Quarterly sales volumeSponge Iron 32,832 23,937 30,579 39,356 36,552 35,780 36,996 38,749 38,749

Billets+ingots 17,078 11,644 5,611 9,716 9,798 2,066 3,701 6,619 6,619Ferro alloys 15,217 16,441 16,016 14,622 16,438 16,197 17,837 17,928 17,068

Power (mn units) 3 7 42 40 20 42 25 27 27

Wire rods 1,932 13,881 19,037 12,237 15,056 21,907 25,323 23,717 23,717

Pellet - - 3,705 15,671 1,381 20,131 8,759 3,131 70,379


Exhibit 4:Quarterly segment-wise sales performanceSteel 99 109 139 162 157 180 200 208 236

Ferro Alloys 103 105 92 79 89 90 93 128 110

Others 1 15 15 14 7 16 10 10 7

Less: Intersegment (2) (15) (2) (1) (1) 1 2 5 1


Exhibit 5:Quarterly segment-wise EBIT performanceSteel 4 11 18 22 24 29 53 27 36

Ferro Alloys 14 9 6 7 10 5 9 33 19


Revenue growth driven by higher steel sales

During 2QFY2013, SEMLs net sales grew by 39.6% yoy to `351cr due to rise in

steel segment volumes. Ferro alloy sales volumes grew by 3.8% yoy to 17,068

tonne and ferro alloy realization improved by 19.3% yoy to `64,691/tonne.

However, billets sales volume decreased by 32.4% yoy to 6619 tonne. Pellet

production increased significantly to 126,973 tonne (compared to 34,081 tonne in

1QFY2013).

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October 30, 2012 4

Exhibit 6:Quarterly net sales trend


Ferro alloy segment lifts SEMLs 2QFY2013 profitability

The companys EBITDA increased by 104.3% yoy to `72cr due to strong

profitability performance from the ferro alloy segment and also steel business. The

ferro alloy segments EBIT increased 81.4% yoy to `19cr mainly due to increase in

realizations. EBITDA margins rose by 650bp yoy to 20.6%. However, the

companys interest costs increased by 238.0% yoy to `18cr which led to the net

profit rising by only 19.6% yoy to `28cr.

Exhibit 7:Quarterly EBITDA trend


214245

254 251

285

298

337

351

38.9

40.5

17.225.5

33.4

21.8

32.7

39.6

0

5

10

15

20

25

30

35

40

45

0

50

100

150

200

250300

350

400

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

(%)

(`cr)

Net sales (LHS) yoy change (RHS)

21

3137 35

65

73

58

72

0

5

10

15

20

25

30

0

10

20

30

40

50

60

70

80

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

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October 30, 2012 5

Exhibit 8:Adjusted net profit trend


Investment rationale

In the recent past, SEML has not

been able to procure iron ore from its captive mine at Rajnandgaon on account of

Naxal activity in the region. Although there is lack of clarity on the timeline for the

re-commencement of this mine, we believe commencement of production from

iron ore should result in significant savings.

SEML plans to set up a greenfield power plant of

350MW at Raigarh in two phases. The company has already acquired over 250

acres. Although the public hearing is already complete, the consent to establish is

pending yet. We have not factored the financial estimates from this power plant in

our forecast model, as there are a few regulatory hurdles to be cleared.

5

9

14

2328

37

20

28

0

2

4

6

8

10

12

14

0

5

10

15

20

2530

35

40

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

(%)

(`cr)

Adj. Net profit(LHS) Adj. Net margin (RHS)

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October 30, 2012 6

Outlook and valuation

We believe that SEML is well poised to benefit from a) backward integration into

coal and iron ore, b) commercial production of pellets and

c) increased power and ferro alloy production. Moreover, firm sponge iron and

pellet prices should lead to higher capacity utilization in FY2013 and FY2014,

thereby leading to higher sales volumes.

Exhibit 9:EV/EBITDA

Source: Bloomberg, Angel Research

Exhibit 10:P/E band


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

(`

cr

)

4.0x 8.0x 12.0x 16.0x 20.0x

0100

200

300

400

500

600

700

800

900

1,000

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

(`

)

3x 8x 13x 18x

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October 30, 2012 7

Exhibit 11:P/BV band


Exhibit 12:Recommendation summary

Godawari 118 161 Buy 374 36 3.5 2.7 0.4 0.4 3.3 2.9 13.2 14.4 17.5 18.0

Prakash 50 73 Buy 667 46 3.2 2.5 0.3 0.3 3.4 2.3 11.4 12.8 9.5 10.7


Company Background

SEML is a Raipur-based steel and ferro alloy manufacturer. The products

manufactured by the company include sponge iron, steel billet, steel ingots, wire

rod, ferro alloys, iron ore pellets etc. The company has a captive thermal coal

mine for manufacturing sponge iron. The company also has several

(non-operational currently) iron ore and coal mines which are under various stages

of clearances.

0

100

200

300

400

500

600

700

Apr-07

Jul-07

Oct-07

Jan-0

8

Apr-08

Jul-08

Oct-08

Jan-0

9

Apr-09

Jul-09

Oct-09

Jan-1

0

Apr-10

Jul-10

Oct-10

Jan-1

1

Apr-11

Jul-11

Oct-11

Jan-1

2

Apr-12

Jul-12

Oct-12

(`)

0.5x 1.0x 1.5x 2.0x

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October 30, 2012 8

Profit & Loss Statement (Standalone)

Gross sales 1,032 556 946 1,197 1,559 1,615

Less: Excise duty (83) (33) (71) (96) (117) (121)

Other operating income - - - - - -

% chg 51.8 (44.9) 67.4 25.7 31.1 3.6

Total Expenditure 726 446 758 963 1,188 1,236

Net Raw Materials 618 369 579 684 929 952

Other Mfg costs 91 58 148 238 206 229

Personnel 17 19 31 41 53 55

Other - - - - - -

% chg 32.4 (65.6) 52.7 17.4 84.5 1.6

(% of Net Sales) 23.5 14.7 13.4 12.5 17.6 17.2

Depreciation 28 39 58 73 63 69

% chg 33.4 (80.6) 56.9 7.8 197.2 (1.0)

(% of Net Sales) 20.6 7.3 6.8 5.8 13.2 12.6

Interest & other Charges 5 13 15 22 75 68

Other Income 4 7 20 22 24 28

(% of PBT) 1.9 22.4 31.0 34.0 17.4 18.9

Share in profit of Associates - - - - - 1.0

% chg 39.6 (83.3) 97.6 0.3 118.1 6.0

Extraordinary Inc/(Expense) (45) 45 6.5 - - -

Tax 26 14 21 13 42 45

(% of PBT) 17.4 18.1 29.8 20.0 30.0 30.0

Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

Extraordinary Expense/(Inc.) - - - - - -

% chg 38.7 (89.0) 133.3 19.4 90.8 6.0

(% of Net Sales) 17.7 3.5 4.9 4.7 6.8 7.0

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

previous year numbers

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October 30, 2012 9

Balance Sheet (Standalone)

Equity Share Capital 34 34 36 36 36 36Reserves& Surplus 479 531 658 772 857 948

Share Warrants - - - - - -

Minority Interest - - - - - -

Total Loans 533 460 582 655 725 750

Other Long Term liabilities - - 1 2 2 2

Long Term Provisions - - 8 8 8 8

Deferred Tax Liability 28 29 36 50 50 50

Gross Block 498 612 926 1,030 1,170 1,310

Less: Acc. Depreciation 147 185 240 299 362 430

Capital Work-in-Progress 355 373 126 111 86 76

Goodwill - - - - - -

Long term loans and advances 111 188 188 188

Other non-current assets 1 1 1 1

Current Assets 352 282 406 456 551 608

Cash 35 25 2 1 12 55

Loans & Advances 199 91 99 159 159 159

Other 118 166 305 296 354 367

Current liabilities 57 96 161 179 171 173

Mis. Exp. not written off - - - - - -

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

previous year numbers

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October 30, 2012 10

Cash Flow statement (Standalone)

Profit before tax 149 77 71 104 139 147

Depreciation 28 39 58 63 63 69Change in Working Capital (1) 33 (183) 62 (92) (11)

Less: Other income 47 (7.7) 5.8 13.6 - -

Direct taxes paid 22 16 10 16 42 44

(Inc.)/Dec. in Fixed Assets (234) (133) (80) (95) (115) (130)

(Inc.)/Dec. in Investments (52) 6 (76) (56.2) - -

(Inc.)/Dec. in loans and adv.

Other income (73) 72 (35) 74.1 - -

Issue of Equity - - 92 - - -

Inc./(Dec.) in loans 94 (36) (9) (81) 70 25

Dividend Paid (Incl. Tax) 12 12 12 12 13 13

Others (15) 14 29 57 - -

Inc./(Dec.) in Cash (61) 9 (23) (1) 11 43

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable withprevious year numbers

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October 30, 2012 11

Key Ratios (Standalone)

P/E (on FDEPS) 2.7 24.3 11.0 9.2 4.9 4.6P/CEPS 2.3 7.8 4.7 3.8 2.9 2.8

P/BV 0.9 0.8 0.7 0.6 0.5 0.5

Dividend yield (%) 2.3 2.3 2.3 2.3 2.3 2.3

EV/Sales 0.9 1.6 1.0 0.8 0.7 0.6

EV/EBITDA 3.9 10.7 7.7 6.6 3.8 3.7

EV/Total Assets 0.8 0.8 0.7 0.6 0.6 0.5

EPS (Basic) 49.4 5.4 12.0 14.4 27.2 28.7

EPS (fully diluted) 49.0 5.4 12.0 14.4 27.2 28.7

Cash EPS 57.6 16.8 28.1 34.8 44.8 47.9

DPS 3.0 3.0 3.0 3.0 3.0 3.0

Book Value 150.8 165.8 193.5 225.4 249.1 274.3

EBIT margin 20.6 7.3 6.8 5.8 13.2 12.6

Tax retention ratio (%) 82.6 81.9 70.2 80.0 70.0 70.0

Asset turnover (x) 1.2 0.5 0.8 0.9 1.0 1.0

RoIC (Post-tax) 20.2 3.2 3.9 4.1 9.7 8.9

Cost of Debt (Post Tax) 0.9 2.1 2.0 2.8 7.7 6.7

Leverage (x) 0.8 0.7 0.6 0.5 0.6 0.5

Operating RoE 36.3 4.0 5.1 4.9 10.8 10.0

RoCE (Pre-tax) 21.4 3.6 5.0 4.5 11.9 10.9

Angel RoIC (Pre-tax) 24.5 3.9 5.6 5.2 13.8 12.7

RoE 26.9 11.7 7.9 6.9 11.5 11.0

Asset Turnover (Gross Block) 2.3 0.9 1.1 1.1 1.3 1.2

Inventory (days) 38 106 108 75 75 75

Receivables (days) 7 10 18 14 14 14

Payables (days) 3 40 32 32 32 32

WC cycle (ex-cash) (days) 47 80 74 70 58 68

Net debt to equity 0.8 0.7 0.6 0.5 0.6 0.5

Net debt to EBITDA 1.9 4.8 3.7 3.2 2.0 1.9

Interest Coverage (EBIT / Int.) 42.5 3.0 3.9 3.0 2.5 2.7

Note: Some of the figures from FY2011 onwards are reclassified; hence some ratios may not be

comparable with previous year ratios

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October 30 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Disclosure of Interest Statement Sarda Energy

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

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