>ISPAT INDUSTRIES: Ispat’s share being 76mn tonnes.

We met management of Ispat Industries. Key takeaways of our meeting are as
follows:

Joint venture with Stemcor to set up a coke oven plant: Ispat has entered into a JV (Amba River Coke) with Stemcor for setting up a 1mn tonne coke oven plant at a cost of Rs1,124cr. Ispat holds 26% equity stake & the balance is held by Stemcor.

The project will be funded through debt-equity ratio of 2:1 and is yet to achieve the financial closure. Ispat’s equity contribution will be Rs100cr (Rs50cr will be through land and infrastructure support and balance Rs50cr through cash infusion). Once commissioned, the plant will cater to 100% coke requirement of the company.

110MW power plant to lead to cost savings: Ispat under its subsidiary, Ispat Energy, is setting up 110MW captive power plant (CPP) comprising of two units of 55MW each. The plant will primarily use gases from coke oven and blast furnace. Land for the project has been acquired and the civil work has also started. Total cost of the project is expected to be Rs491cr and the company expects savings of Rs1,300cr post commissioning of the power plant.

Captive raw material holds the key for future performance: Ispat has already
secured the prospecting license for developing iron ore mines in Maharashtra.
The management expects to start mining in FY2012 and targets iron ore
production of 2mn tonnes. The company in a JV with Essar Steel, Mukand,
Kalyani Steel and Ind Synergy has also been allotted Behrabad (North) coking
coal block in Madhya Pradesh. The mine has reserves of 170mn tonnes, with


Outlook and Valuation: At the CMP, the stock is trading at P/BV of 1.4x and
EV/EBITDA of 7.8x FY2010. We believe that future stock performance would be
dependent upon improvement in raw material integration and successful
commissioning of the power and coke oven plants.

To read the full report: ISPAT INDUSTRIES