Crisil Research has revised its rating of Electrosteel Castings Ltd (ECL) equity to ‘moderate’ grade from ‘good’.
The rating agency on Friday said the stock has been downgraded for the financial stress faced by its associate Electrosteel Steels Ltd (ESL) and the delay in getting approval for its iron ore mine.
Mohit Modi, Director of Crisil Equity Research, told
“We have also revised the fair value (of the stock) from Rs 45 a share to Rs 25 a share. At the current market price of Rs 10 per share, our valuation grade is 5/5 indicating that the market price has strong upside from the current levels,” Crisil said in a note.
Angel Broking analyst Bhavesh Chauhan also maintained his “positive stance” on the company’s steel making project through its associate ESL. “The company’s backward integration initiatives through the allocation of iron ore and coking coal mines are expected to result in cost savings from FY2014-15. “We maintain our buy view on the stock with a target price of Rs 15,” he said in a recent report.
Stabilisation woe
Along with cost overruns and execution delays, the ESL project is facing project stabilisation difficulty, Crisil noted.
“Saddled with a huge debt of Rs 6,950 crore and debt-to-equity ratio of 4x (as on March 31), ESL approached lenders in May for restructuring its debt (CDR),” Crisil noted.
ECL has given a corporate guarantee of Rs 450 crore for ESL loans. ECL’s captive iron ore mine received the stage I clearance in January 2012. However, the final clearance is still pending. Crisil and Angel felt that this eluded significant benefit both the companies.
ECL’s strong thrust on ductile iron (DI) exports (56 per cent of sales in FY13) has enabled it to maintain plant utilisation level at 100 per cent despite overcapacity in the industry.
Going ahead, Crisil expected that demand for DI pipes to grow at a CAGR (compound annual growth rate) of 15-17 per cent during the 12th Plan period due to 73 per cent higher allocation for water infrastructure.
The Re 1 ECL stock on Friday closed nearly three per cent higher at Rs 10.85, on the NSE.