>VISA STEEL (ICICI DIRECT)

Eclipse over, brighter days ahead…

The Q1FY10 result reported by Visa Steel came in pretty much in line with our expectations. The company after suffering significant losses for the last couple of quarters posted a net profit of 10.07 crores (ICICIdirect.com estimate 9.6 crores) in Q1FY10. Higher production, stabilization in realisation, fall in raw material costs and appreciation in INR against the USD helped the company to recover from its worst ever performances (during H2FY09). With the better prospect for domestic steel production and demand and thereby for coke, the outlook is appearing brighter for the company going ahead.

Highlight of the quarter
The net sales came at Rs 254.1 crore, almost similar to Q1FY09 figure, however, down by 11.2% Q-o-Q. EBITDA margin though fell by 1570 bps Y-o-Y, however, bounced back into positive territory against Q4FY09. Despite posting profits,the PAT on a Y-o-Y basis fell by 79%. Production volume on the other hand have improved both Y-o-Y and Q-o-Q.

Valuations
Though overall prospect looks brighter than before, however, we remain cautious on the stock considering short-term uncertainty. In this scenario we value the stock in terms of P/ BV. Considering the recent development and the short-term uncertainty we value the stock at 0.8x of its FY10E book value of Rs 31.1, which takes the target price to Rs 25, a negative return of 7.4%. Thus, we upgrade the stock from UNDERPERFORMER to HOLD.

To see full report: VISA STEEL