Alicon Castalloy Ltd. - Q4 FY14 Result Update - CMP Rs.131 - Rating Changed to BUY for increased target of Rs.189 - Sushil Finance

Alicon Castalloy Ltd. (ACL) released its Q4 FY14 performance on April 30, 2014. The top-line continued to be sluggish showcasing the continued industrial slowdown; however, the company depicted a smart bottom-line performance. Following are the highlights and excerpts of our conversation with the Management following the results.

Q4 FY14 Result Highlights (Standalone)

During Q4 FY14, the top-line registered de-growth of 5.7% YoY to 1,161.5 mn. Nevertheless, the EBITDA margin improved substantially from 8.8% in Q4 FY13 to Q4 FY14 on account of lower raw material costs, personnel costs and other expenses. On standalone basis, the Company reported an EPS of Rs.5.47 in Q4 FY14, lower, as compared to Rs.5.14 in Q4 FY13 but significantly higher than Rs.2.75 in Q3 FY14.

Q4 FY14 Result Highlights (Consolidated)

During Q4 FY14, the top-line de-grew 7.3% YoY to 1,353.2 mn with Illichmann Castalloy contributing Rs.228.2 mn. The EBITDA margin witnessed significant improvement from 7.7% in Q4 FY13 and 8.8% in Q3 FY14 to 13.8% in Q4 FY14. The strong improvement resulted from higher inventory and some exchange benefits. In addition, the Company managed to source raw material at lower prices. Other operational efficiencies in the domestic operations in terms of manpower and manufacturing related expenses also benefited the profitability. On consolidated basis, the Company reported an EPS of Rs.7.49 in Q4 FY14 as compared to Rs.5.26 in Q4 FY13 and Rs.2.96 in Q3 FY14. Illichmann Castalloy contributed an EPS of Rs.0.13 in Q4 FY14 as against Rs.0.09 in Q3 FY14 and Loss of Rs.5.27 in Q4 FY13.

FY14 Update

During FY14, the Company achieved a moderate top-line growth of 2.1% to Rs.5,331.2 mn on account of industrial slowdown, particularly in the auto space. Recently, there has been some pick-up in the two-wheelers but commercial space is still witnessing some demand-haul. Going forward, the Management is confident of achieving double digit top-line growth on account of new customer additions and new despatches to existing customers. During the year, especially in the last quarter, the profitability has improved substantially. Furthermore, the Management expects to save the recent margins which are likely to show a gradual uptrend on annual basis, going forward. During the quarter, there have been no new customer additions but the Management stated that soon they will be beginning fresh despatches to a few customers

OUTLOOK & VALUATIONS

Following our recent conversation with the management and recent performance, we have now scaled up our earnings estimates for FY15 and have also introduced our fresh estimates for FY16. We now expect ACL to register a top-line of Rs.6,261.3 mn in FY16 with an EBITDA margin of 10.7% and a net profit of Rs.260.5 mn at 4.2% margin, thereby, earning per share of Rs.23.7. Therefore, at current price the stock is available at 7.5x FY14 earnings and 5.5x FY16E earnings. Considering the EV/EBITDA and Price-to-sales as well, the Company still looks very cheap. Hence, we maintain our robust outlook on the company and upgrade our recommendation for the stock with the BUY rating for the revised target price of Rs.189. The recent performance, robust clientele, increased stake by promoters and cheap valuations alongwith upright management keeps us encouraged.

Shares of Alicon Castalloy Limited was last trading in BSE at Rs.173.15 as compared to the previous close of Rs. 155. The total number of shares traded during the day was 61829 in over 2048 trades.

The stock hit an intraday high of Rs. 180 and intraday low of 171. The net turnover during the day was Rs. 10864332.

Source : Equity Bulls

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