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Research
Adhunik Metaliks - Compelling valuation - ElaraCapital
Posted On : 2013-06-04 20:42:45( TIMEZONE : IST )
Power segment supported disruption in mining business
Adhunik Metaliks (ADML) reported consolidated EBITDA of INR1.77bn (up 97% YoY and 16% QoQ). However, this included ~INR420mn EBITDA from recently commissioned power plant which was not there in earlier quarter. Excluding that, EBITDA declined 11% QoQ primarily due to lower iron ore volumes and prices as well as softness in steel prices.
Mining(OMM)-Volume disruption and lower prices impact EBITDA
EBITDA was down 29% QoQ to INR599mn due to lower iron ore volumes (down 59% QoQ to 109kt) and prices (down 7% QoQ to INR3,048/tonne). Volumes were impacted due to procedural delays related to royalty. Blended pellet prices, too, have come down by ~19% QoQ to INR6,500/tonne which dented margins. Steel - Lower volumes and prices depress operational performance EBITDA declined 12% QoQ to INR621mn due to lower steel volumes and prices. EBITDA could have been much lower had the company not benefitted from trading of raw materials, billets etc which contributed ~INR200mn to EBITDA.
Power- Adding new division to earnings
Power segment contributed ~INR420mn to consol EBITDA during the quarter as the commercial production of the 1st unit (270MW) started on 21st Jan'13. It has declared commercial production of the next unit (270MW) too on 19th of May'13.
Outlook and valuation- Attractive Buy
The disruptions in mining operations have receded and we expect higher iron ore volumes in June' quarter. The cut in interest rate will help the company in lowering its interest cost. We continue to expect ADML's consolidated EBITDA to double in FY14 from FY11 levels. The current market price doesn't reflect this growth, which is expected to unfold this year. We have used EV/EBITDA method for valuing steel and mining business (4.0xFY14E EV/EBITDA) and P/B method for valuing power business (1.0xFY14E P/B). We maintain Buy with a SoTP Target Price of INR61. At the CMP of INR26, the stock is cheaply available at 0.3x FY14E P/B with RoE of 10.7%.
