Bhushan Steel , BUY

MK, 23rd May 2008, Sensex – 16,650

Bhushan Steel Ltd, BUY, Earnings revision

Price Rs783 Target Price1,583

Maintain positive outlook, revising target

We are revising our numbers for Bhushan Steel Limited (BSL) to reflect the current trends in steel prices and its progress in its greenfield plant at Orissa. The increase in CR prices has been in line with the increase in HR prices (maintaining the margins). Further, its 2.2mtpa integrated steel plant at Meramandali, Orissa is currently on track and the management expects first hot metal from blast furnace by Dec 2008. We marginally revise our estimates for FY09 and FY10 to reflect the changes in input and finished product price expectations for FY09 and FY10. We marginally reduce our FY09 EPS estimate from Rs118.2 to Rs116.5 (down by 1.5%) and reduce our EPS estimates for FY10 from Rs171.5 to Rs158.3 (down by 7.7%) to reflect the increased cost of raw material and factor a conservative approach on pricing. Lastly, we reduce our assumption on dilution to reflect the management perception of not raising any fresh capital through dilution. As against our earlier assumption of dilution of 14%, we now factor in a dilution of 10.3% (5% each in FY09 and FY10) as a conservative approach.

At CMP of Rs783 the stock is trading at 6.7x FY09E and at 4.9x FY10E FDEPS. On EV/EBITDA basis, the stock is currently trading at 7.5x FY09 and 4.4x FY10 estimates. We maintain BUY on Bhushan with target price of Rs1,583 (10x FY10 FDEPS of Rs158.3)