GRIL’s Q4FY21 beat JEFe and marked an Ebitda turnaround, posting an op margin of 13.8%, after 5 quarters of op losses. Capability utilisation rose from 36% in Q1 to 75% in This fall (41% y-o-y), suggesting higher demand. Key operational metrics (gross sales, profitability) improved q-o-q in FY21. Electrode value restoration in This fall led to stock positive aspects, aiding margins (NRV foundation). Decarbonisation is a structural tailwind. We tweak FY22-24 estimates barely, retaining EPS. Purchase; PT Rs 875.
Sequential enchancment: GRIL’s operational metrics improved persistently in FY21: (i) Capability utilisation expanded from 36% in Q1 to 75% in This fall (41% in Q4FY20); (ii) top-line progress q-o-q; (iii) Ebitda losses rotated to a wholesome margin of 13.8% in This fall; (iv) traction in internet revenue (PAT margin at 12% in This fall); and (v) robust internet money place at Rs 27.3 bn (Rs 20.1bn as of Mar’20).
GRIL’s India enterprise noticed a superb restoration in H2FY21 and delivered increased profitability. In Q4FY21, electrode costs started to get better from their lows, resulting in stock positive aspects. In actual fact, GRIL posted constructive Ebitda in This fall after 5 quarters of working losses. Nonetheless, the corporate’s German operations (18,000 MT capability) had been affected by prolonged lockdown, decrease utilisation and weaker ASPs.
Business replace: World metal & electrode industries had been affected in H1FY21 by COVID lockdowns and manufacturing unit closures. Nonetheless, gradual demand resumption from steel-consuming sectors supported electrode demand in H2.
Structural drivers: In April 2021 China abolished a rebate of 13% VAT on sure metal exports – thus, decrease Chinese language exports might be beneficial for different EAF steel-producing nations. This, together with a give attention to decarbonisation, may underpin Electrode demand in the long run. Moreover, metal trade demand is prone to be supported by structural end-user industries corresponding to development and car. Wanting forward, GRIL mgmt stays optimistic in mild of the continued restoration in electrode demand and value stabilisation.
Key assumptions, estimates: We retain our FY22/23/24e Electrode ASPs at $6.5k/ $7.3k/ $7.5k /MT – our ASP estimates are nonetheless 40-50% under the upcycle peak of FY19. Capability utilisation in FY22 estimated at 75% and 85%+ in FY23/24. Needle coke (key uncooked materials) value assumed at $2.2k-$2.3k/MT over FY22-24e. We tweak our FY22-24 estimates marginally, broadly retaining EPS.
Reiterate Purchase: Commodity shares seem to have entered an improve cycle after 2-3 weak years. Factoring in enhancing operational efficiency and a beneficial trade outlook, we worth GRIL at EV/Ebitda of 8.3x – a ~10% premium to its historic 10-year avg (vs 7.5x). GRIL’s FY23/24e P/BV stands at 1.9x / 1.5x. Reiterate Purchase with revised PT of Rs 875 (vs Rs 810). Key dangers: subdued EAF manufacturing, decrease utilisation/ASPs, increased NC value.