Monnet Ispat's standalone revenue at Rs3.6bn grew 15% YoY on improved realisations. Consequently, operating profit at Rs1.05bn rose 9% YoY, although OPM declined by 169bps YoY to 29% due to increase in raw material costs. Net Profit was flat at Rs656mn.

Merchant power: The company sold 198mn units of power at an average tariff/unit of Rs4.3 (vs Rs4.9 in Q1FY11, Rs4.2 in Q2FY10).

Expansion Update: Monnet's proposed 1.4 mn tonnes structural steel plant is expected to get completed by FY13 with gradual increase in capacities Q4FY11 onwards.

Outlook With an expansion of 1.4mnt by FY13, Monnet is on the path of transforming from primarily sponge iron maker to an integrated steel producer. We expect this transition to boost Monnet's steel segment EBITDA by 69% CAGR over FY10-13E due to doubling of volume and expansion of blended EBITDA/tonne from Rs3,300 in FY10 to Rs6,900 in FY12 and Rs8,300 in FY13. Consequently, we expect EPS CAGR of 29% over FY10-FY12E.

VALUATIONS AND RECOMMENDATION We value Monnet Power at Rs309/share (based on stake sale to Blackstone), an 18% discount to our DCF-based fair value of Rs376/share. And our fair value for Monnet Ispat is Rs313/share (4.5x FY12E EV/EBITDA). Post recent run-up (up 20% since our 'BUY' reco on 28th Sep'10), at CMP of Rs624 the stock is fairly valued at 4.5x FY12E EV/EBITDA (adjusted for value of Monnet Power). Downgrade to 'HOLD' with a SOTP-based target price of Rs622.