Indian Metals & Ferro Alloys - Sign of revival visible... - Nirmal Bang

IMFA reported muted sales growth YoY to Rs296.7 crore whereas, a jump by 11.5% QoQ due to the availability of ferro chrome. The ferro chrome production and sales volume were up by 51% and 16% QoQ respectively, though, ferro chrome production and sales volume were down by 1% and 7% YoY, respectively. Power generation was up 6% YoY and 18% QoQ at 213mu.

The company reported ferro chrome realization of Rs64,000/ton in Q3FY13 as compared to Rs65,000/ton in Q2FY13. On realization front, the company has posted 4% QoQ drop. The current realization has improved to the tune of Rs67,000/ton (as compared to average of Rs64,000/ton in Q3FY13).

On the back of higher realization YoY, the company reported 2% jump in revenue, but EBITDA was down 36% YoY due to high power costs and high chrome ore cost on account of merchant buying. The EBITDA margin was down by 390bps YoY to 19.6% in Q3FY13 and by 360bps QoQ. Interest costs were down 38% YoY as Q3FY12 has included forex loss of 15 crore as compared to forex gain of Rs4.2 crore during Q3FY13. However, depreciation was up 16% due to commissioning of first unit of 60MW. The above factors resulted in 47% YoY drop in PAT for Q3FY13.

On a sequential basis, the company reported 10% increase in revenue due to higher volume. However, EBITDA was down 6% due to high chrome ore costs. It reported 31% drop in PAT driven by lower EBITDA and higher interest and depreciation charges.

- Net Sales for Q3FY13 was flat at Rs296.7 crore as compared to Rs294.3 crore in Q3FY12 and up by 11.5% QoQ.

- IMFA reported EBITDA of Rs58.28 crore in Q3FY13, down by 15.6% YoY and by 5.7% QoQ.

- The PAT was up by 14.4% YoY to Rs15.06 crore and declined by 30.8% QoQ. The PAT margin was 5.1% in Q3FY13 as compared to 4.5% in Q3FY12 and 8.2% in Q2FY13.

Valuation & Recommendation

We believe the start of Nuasahi mines in the early January 2013 which will improve the operating margin for the company going forward. As the closure of Nuasahi mine led to merchant buying of chrome ore at a higher price, dampening the profitability of the company for the past couple of quarters. We further believe that the commencement of Utkal coal block is likely to re-rate the stock. As per our understanding, the company should be able to get the final mining clearance in next 6-9 months. At CMP of Rs281, the stock is trading at an EV/EBITDA of 5.6x FY13E and 4.7x FY14E. We maintain our HOLD rating and revised our target price of Rs316 (5.5x EV/EBITDA FY14E).

Source : Equity Bulls

Keywords