Company Update | Steel

February 17, 2012

ELECTROSTEEL CASTINGS
Iron ore mines get MOEF clearance
Electrosteel Castings (ECL) receives forest clearance: We resume coverage on ECL in view of a positive development (receipt of forest clearance). ECL has received forest stage-I clearance for its iron ore mines located at Kodolibad, West Singhbhum, Jharkhand, from Ministry of Forests and Environment (MOEF). ECL expects to receive stage-II clearance in the coming 2-3 months and then sign mining lease with the state government. After signing the mining lease, ECL can develop the mine and resume production. The mine has reserves of 91mn tonnes with 64% Fe content. ECL expects to commence production from this mine in FY2013. However, procedural delays cannot be ruled out in our view. Update on coking coal mine: ECL has a coking coal mine in Parbatpur, Jharkhand, with reserves of 231mn tonnes. The mine has received full statutory clearances and ECL is currently developing the mine. The company expects meaningful production from this mine to commence from 2HFY2013. ECL to turn into a fully integrated player: With upcoming production from coking coal and iron ore, ECL will turn into a fully integrated steelmaker. Although there is lack of clarity on the timelines for commencement of meaningful production from its coking coal and iron ore mines, ECLs margins are expected to be significantly higher than its peers once it reaches optimum production capacity at its mines. Moreover, ECLs associate, Electrosteel Steels (34.8% stake) with 2.2mn tonnes of steel capacity is expected to benefit the most, as ECL will supply coking coal and iron ore from its mines to Electrosteel Steels at subsidized rates (cost + 20%). Outlook and valuation: We have a positive stance on ECLs initiatives of gradually venturing into steel making through its associate Electrosteel Steels. Furthermore, the companys backward integration initiatives through allocation of coking coal and iron ore mines are expected to result in cost savings from FY2013. The stock is currently trading at 0.4x each for FY2012E and FY2013E. We recommend Buy on the stock with an SOTP target price of `32.

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Steel 757 0.7 35/16 121,863 1 18,289 5,564 ELST.BO ELSC@IN

`24 `32
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 48.5 10.1 6.3 35.1

Abs. (%) Sensex ECL

3m 11.1 1.7

1yr (26.0)

3yr (1.2)

(1.2) 102.4

SOTP valuation
Particulars Standalone business Stake in Electrosteel Steels Stake in Lanco Ind. 5.0x FY2013E EV/EBITDA 1.0x P/BV 20% discount to CMP (`) 10 20 2

Target price
Source: Company, Angel Research

32

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

Electrosteel Castings | Company Update

Exhibit 1 : Recommendation summary

Companies Tata Steel JSW Steel SAIL Monnet Ispat CMP Target Price (`) (`) Reco. Mcap Upside (` cr) P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

478 855 112 490

558

Buy 46,423

17 35

11.7 19.1 11.7 10.4

8.4 11.8 10.1 7.0

1.0 1.2 1.1 1.3

0.9 1.1 1.0 1.1

7.5 6.4 10.2 10.5

5.3 5.5 8.2 6.3

18.8 6.7 10.0 13.7

10.9 10.1 10.6 18.2

7.0 9.0 7.1 7.4

9.4 10.8 8.4 11.6

- Neutral 19,068 - Neutral 46,157 663 Buy 3,152

ECL

24

32

Buy

875

31

13.2

4.7

0.4

0.4

11.0

6.6

3.6

9.8

3.3

6.0

Source: Company, Angel Research

February 17, 2012

Electrosteel Castings | Company Update

Profit & loss statement (Consolidated)

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Extraordinary Expense/(Inc.) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY08 23 17.7 777 494 90 102 7.1 38 64 4.5 37 78 74.0 106 (33.1) (60) 46 1.7 3.8 44 11 0 55 116 10.3 8.0 5.0 4.0 3.9 FY09 27 FY10 30 FY11 1,873 34 1,907 18.4 1,604 897 558 149 303 (8.1) 16.2 56 247 (10.6) 13.2 86 62 27.7 223 (28.4) 223 61.1 27.4 162 18 0 180 180 (23.3) 9.6 5.5 5.2 (23.3) FY12E 1,988 53 2,041 7.0 1,871 1,046 646 179 170 (43.9) 8.5 57 113 (54.3) 5.7 73 10 19.9 50 (77.4) 50 7.5 15.0 43 22 1 63 63 (64.7) 3.2 1.9 1.8 (64.7) FY13E 2,124 56 2,180 6.8 1,887 1,005 690 191 293 72.4 13.8 82 211 86.9 9.9 83 12 8.5 140 179.2 140 42.1 30.0 98 81 1 178 178 181.6 8.4 5.5 5.2 181.6 1,440 1,948 1,580 1,462 1,975 1,610 35.1 (18.5) 986 586 113 291 14.9 53 238 12.2 103 64 32.3 198 87.2 198 35.5 128 9 1 135 135 17.1 6.9 4.8 4.2 7.2 646 503 131 330 13.4 20.9 54 276 16.4 17.5 52 87 28.1 312 57.2 312 33.7 206 28 1 234 234 73.1 14.8 7.3 6.8 59.9 1,360 1,684 1,280

(35.9) 184.6

(48.3) 268.8

70.4 105.2

February 17, 2012

Electrosteel Castings | Company Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders funds Share Warrants Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 179 1,686 184 518 984 369 1,316 2,062 466 1,594 95 441 1,057 337 1,257 2,544 1,067 1,300 299 208 793 332 969 2,971 1,425 1,636 205 247 1,185 686 950 3,382 1,425 1,631 238 271 1,122 753 878 3,453 1,425 1,699 202 298 1,199 743 957 3,600 643 226 416 150 798 279 519 302 860 322 538 397 936 382 553 454 1,301 439 861 289 1,626 521 1,104 114 28 1,133 1,161 34 3 844 20 2,062 29 1,338 1,367 34 4 1,101 37 2,544 33 1,588 1,621 5 1,298 47 2,971 33 1,714 1,747 5 1,587 44 3,382 33 1,730 1,762 5 1,642 44 3,453 33 1,856 1,889 5 1,662 44 3,600 FY08 FY09 FY10 FY11 FY12E FY13E

February 17, 2012

Electrosteel Castings | Company Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Inc./ (Dec.) in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY08 51 39 (223) 69 (14) (78) (179) 13 (279) (445) 74 349 (26) (5) 392 (131) 315 184 FY09 193 53 (160) 124 (44) 166 (301) (177) (90) (568) 121 246 (7) (47) 314 (89) 184 95 FY10 312 54 172 (34) (115) 389 (174) (307) 13 (469) 15 359 (41) (50) 283 203 95 299 FY11 223 56 (100) 50 (59) 170 (119) (315) 30 (404) 0.3 277 (41) (96) 140 (94) 299 205 FY12E 50 57 105 21 (8) 226 (200) (200) 55 (48) 7 33 205 238 FY13E 140 82 (115) 80 (42) 146 (150) (150) 20 (52) (32) (36) 238 202

February 17, 2012

Electrosteel Castings | Company Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.6 6.5 1.7 0.6 2.8 2.3 0.5 2.3 5.3 0.6 3.5 2.9 0.6 6.3 1.6 0.6 3.9 2.6 2.4 117 132 97 182 2.7 94 104 54 158 1.9 115 69 95 177 2.1 137 69 95 156 1.8 137 69 95 168 1.5 137 69 95 154 3.5 4.4 5.5 10.3 12.9 10.4 10.0 13.8 15.5 7.8 11.1 10.7 3.3 4.5 3.6 6.0 7.6 9.8 4.4 96.2 0.8 3.3 4.5 0.6 2.6 12.0 64.5 0.9 6.8 6.8 0.6 6.8 17.2 66.3 0.7 7.5 2.9 0.5 9.7 13.0 67.1 0.7 5.8 3.2 0.6 7.4 5.5 85.0 0.7 3.3 3.8 0.6 3.0 9.7 70.0 0.7 4.8 3.5 0.6 5.6 5.0 4.0 5.2 1.3 42.6 4.8 4.2 5.9 1.3 48.8 7.3 6.8 8.3 1.3 49.6 5.5 5.2 6.8 1.3 53.4 1.9 1.8 3.5 1.3 53.9 5.5 5.2 7.5 1.4 57.8 6.1 4.6 0.6 5.2 0.8 11.9 0.6 5.7 4.1 0.5 5.2 0.8 5.2 0.6 3.6 2.9 0.5 5.2 1.0 4.7 0.5 4.7 3.6 0.5 5.2 1.0 6.1 0.5 13.2 6.9 0.4 5.2 0.9 11.0 0.5 4.7 3.2 0.4 5.6 0.9 6.6 0.5 FY08 FY09 FY10 FY11 FY12E FY13E

February 17, 2012

Electrosteel Castings | Company Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Electrosteel Castings No Yes No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 17, 2012

Electrosteel Castings | Company Update

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800 Research Team
Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Hemang Thaker Nitin Arora Ankita Somani Varun Varma Saurabh Taparia Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com Hiten.Sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Infrastructure Metals & Mining Mid-cap Research Associate (Cement, Power) Research Associate (Automobile) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) Research Associate (Banking) Research Associate (Cement, Power) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com shailesh.kanani@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com Sourabh.taparia@angelbroking.com

CSO & Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Tel.: (022) 3083 7700. Angel Broking Ltd: BSE Sebi Regn No: INB010996539 / PMS Regd Code: PM/INP000001546 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / NSE Sebi Regn Nos: Cash: INB231279838 / NSE F&O: INF231279838/Currency: INE231279838 / MCX Currency Sebi Regn No: INE261279838 / Member ID: 10500 / Angel Commodities Broking Pvt. Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

February 17, 2012