The share price of
Essar's profits were hit by a net charge of $656m (£413m) after the Indian court ruled against it over a matter relating to deferred state sales tax. Essar is seeking a judicial review of the decision, but a provision of $1.14bn was included in the balance sheet to reflect the potential liability to the state of Gujarat. Essar also suffered from the rapid weakening in the rupee last year, prompting a $303m foreign-exchange loss.
Even if you exclude these factors, Essar's cash profits of $625m (£394m) still came up short of consensus estimates, and were 10 per cent down year on year. A positive note was provided by a one-fifth hike in Essar'’s Indian refining and marketing revenues, while the key Vadinar refinery expansion remains on target.
The Gujarat decision, together with a 60 per cent rise in underlying net debt to $5.7bn, has prompted Essar to review its capital commitments. It has already reassessed three power projects – Salaya 2 & 3 and Neptune 1 – while giving notice that it may not participate in a proposed capital raising by its subsidiary Essar Oil.
Deutsche Bank anticipates 2012 EPS of 20¢ (from 6¢ in 2011)
|ORD PRICE:||123p||MARKET VALUE:||£1.6bn|
|TOUCH:||122-123p||12-MONTH HIGH:||531p||LOW: 108p|
|DIVIDEND YIELD:||nil||PE RATIO:||na|
|NET ASSET VALUE:||266¢||NET DEBT:||155%|
|Year to 31 Dec||Turnover ($bn)||Pre-tax profit ($m)||Earnings per share (¢)||Dividend per share (¢)|
Essar's deteriorating capital health increases near-term uncertainties, but Vadinar does provide some cause for optimism. And Essar's shares – at 123p – are hardly tempting at 10 times forward earnings. Hold.
Last IC view: Fairly priced, 255p, 23 Aug 2011