Electrosteel Steels - Review

[chetan]

Angel Broking Analyst Pooja Jain and Paresh Jain have the following recommendation on the IPO,

At the lower and upper band of Rs10–11, ESL trades at 1.0x FY2010 and 1.1x FY2010 P/BV, which is at a significant discount of 50–60%, given that its peers are trading in the range of 2.0x–2.8x FY2010 P/BV. We believe ESL’s IPO holds value for long-term investors on account of the a) progressive commissioning of the greenfield steel plant from October 2010, b) raw-material linkage and captive power to support margins and c) technical tie-ups to aid operations at initial
stages. Hence, we recommend Subscribe to the IPO with a long-term perspective.

[chetan]

HDFC Securities Opinion on Electrosteel,

The fortunes of domestic DI pipe industry are directly linked to the quantum of funds allocated for water supply & sewerage disposal projects by Gol. Over the years, Gol has laid emphasis on creating water & sewage infrastructure as demonstrated by the fact that the eleventh live year (FY08-FY12) plan envisages USD 83 bn of investments in irrigation and water supply and sanitation. Accordingly, demand for DI pipes is expected to grow at 15% p.a. over the next few years. This is also due to conversion of demand from other varieties of pipes to DI pipe, stemming from estimated growth in demand for water in India from 800 bn cu.m. in 2007 to 1,100 bn cu.m. by 2010.

While there may not be any large downsides from the IPO price, the upside could take time to materialize given the initial gestation period, large debt, plant in area susceptible to civil disturbances, large equity and cyclicality in the industry.

[chetan]

Anand Rathi's Views on the IPO,

Since the company has a fully integrated plant and captive raw materials are available, the company will turn profitable once it starts commissioning its capacity. We recommend to Subscribe for the IPO.

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HSBC's Views on the IPO are as follows,

The issue price of Rs 10-11 per share results in a market capitalization in the range of Rs 20,345.35-22,751.98mn (the range factors in the green shoe option and the upper and lower end of the book building price), thereby leading to an EV/tonne of Rs 34,006-35,101/ton. The average EV/ton of domestic steel players (Tata Steel, SAIL, JSW Steel, Ispat Industries and Usha Martin) stands at Rs 52,702/ton. The IPO price band of Rs 10-11 is at par with the pre-IPO price where in placements have been made to Franklin Templeton Private Equity, Global Pacific Capital and the promoter group. Given that the company is still in the investment phase and will be able to start commercial production in a meaningful manner in FY12, we prescribe a “Subscribe” rating to the stock only from long term point of view.

[sunil]

Religare has a SUBSCRIBE recommendation with the following note,

The positives for the company include a) Integrated operations including captive power plants and railway sidings, b) Raw material linkages for iron ore and coking coal, c) Locational Advantages and d) Low Cost of Production.