Higher realizations drive top-line growth: PIL’s net sales grew by 37.8% yoy to Rs.631 Cr mainly on account of higher realization across product categories. Gross realization of structural steel/TMT and wire rods increased by 12.4% and 7.8% yoy to Rs.38,557/tonne and Rs.40,409/tonne, respectively.
High costs dented PIL’s profitability: Raw material costs increased by 44.9% yoy to Rs.444 Cr due to increase in prices of inputs. EBITDA margin slipped by 367 bps yoy to 13.1%; however, EBITDA increased by 7.7% yoy to Rs.83 Cr. Interest expenses stood at Rs.13 Cr compared to Rs.3 Cr in Q2FY12 and depreciation expenses also increased by 44.7% yoy to Rs.25.72 Cr. Hence, net profit decreased by 18.6% yoy to Rs.44.57 Cr in Q2FY13 as against Rs.54.81 in the same period previous year. .
Outlook and valuation: PIL has slowed down its power expansion plans; nevertheless, we can expect PIL’s EBITDA to witness a strong growth from FY14 once the benefits of increased capacities of sponge iron and power commence meaningful production. Hence, the scrip can be purchased at the CMP of Rs.49.95, for a short term target of Rs.61-62.