Porinju Veliyath recommended investment in Kalyani Steels. He advised investors to buy the stock of Kalyani Steels Ltd on 27th May 2016.
The stock is one of the holdings of Porinju Veliyath in his portfolio. Even the portfolio of Equity Intelligence PMS has Kalyani Steels in it.
KSL is involved in the manufacturing of industrial grade steel, forging quality steel, rolled bars etc.
Kalyani Steels Ltd reported Q3FY17 result with a strong revenue performance. The net sales stood at Rs. 3.9bn with a growth of ~51.4% YoY and 18.6% QoQ. KSl witnessed a contraction in its EBITDA margins by ~526/525 bps to 16.8% in Q3FY17.
The net profit stood at Rs 343mn a growth of ~31.2%/-8.9% YoY/QoQ, respectively. KSL continues its debt reduction activity with current level of debt close to ~Rs. 1.25 bn.
Revenue growth of 51.4%/18.6% YoY/QoQ:
KSL reported revenue of Rs 3.9bn vs. ~Rs. 2.6bn/Rs. 3.3bn YoY/QoQ, respectively, which has registered Q3FY17 as having the highest topline for the Company. KSL saw a YoY/QoQ growth of ~51.4%/18.6% led by volume growth and trading activities.
India’s GDP growth at ~7% (as per industry estimates) over next few years with focus on major industries such as Automotive, Defence and Engineering, will augur well for KSL.
Kalyani Steels is expected to grow at a CAGR of ~10% over FY16-19e.
EBITDA stood at Rs. 660mn for Q3FY17: KSL posted an EBITDA of Rs 660mn, a YoY/QoQ growth of 15.4%/-9.6% respectively.
The EBITDA margin stood at ~16.8%, experiencing a contraction of ~526/525bps YoY/QoQ, respectively. The primary reason for this contraction was the increased contribution from margin dilutive trading activities (adding ~Rs. 600mn – 650mn to the topline). Also, there was pressure on cost due to increase in coking coal, coke and iron ore prices.
However, apart from the trading activity, Kalyani has been able to maintain an EBITDA margin of more than 20%.
Going forward KSL is expected to enjoy high margins led by benefit of change in product mix with highly engineered products and cost reduction program undertaken by the company along with the strong operational efficiency. The EBITDA margin is expected to be maintained at ~20% over FY16-19e.
Valuation: The stock currently trades at 11.1x/10.3x/9.4x of FY17e/FY18e/FY19e EPS.
The stock has been recommended by Porinju Veliyath and also by DD Sharma. It has already become a multibagger and may still have heavy gains to offer.