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Adhunik Metaliks' 3QFY11 consolidated PAT grew 41% YoY to Rs541m (up 48% QoQ, higher than our estimate of
Rs446m) due to strong iron ore and manganese ore realizations and a ramp up of manganese production.
Orissa Manganese and Mineral's (OMM) PAT increased 86% YoY to Rs430m (up 47% YoY) due to high manganese
volumes and better realizations of manganese and iron ore.
OMM sold 214k tons of iron ore, up 35% QoQ and it sold 54k tons of medium/high grade manganese ore. Average
iron ore realization increased 25% QoQ to Rs2,867/ton due to strengthening of iron ore prices led by a shortage in
Orissa.
With the start of mining operations at three new OMM manganese mines, the company plans to ramp up manganese
production to 300k tons (from 143k tons in FY10) over the next 24 months.
A captive iron ore mine in Keonjhar district has been delayed due to procedural issues in Orissa. The company had
been expecting mining to start in 4QFY11, which now looks ambitious. However, the final stage of reconfirmation
approval of the Suleipat mine (owned by a JV) is expected by the end of 4QFY11. It can start initial production
immediately if the approvals are received.
The commissioning of a 1.2mtpa beneficiation unit and a pellet plant will expand margins. The beneficiation plant is
expected to be commissioned in 1QFY12 and the pellet plant is due to be commissioned in 3QFY12.
We expect consolidated EPS CAGR of 19% to Rs18.8 over FY10-13. The stock trades at FY12E P/E of 4.7x and
EV/EBITDA of 5x. Reiterate Buy with a target price of Rs154 (based on 6.5x FY12E EV/EBITDA).
Adhunik Metaliks' 3QFY11 consolidated PAT grew 41% YoY to Rs541m (up 48%
QoQ; higher than our estimate of Rs446m) due to strong iron ore and manganese ore
realizations and a ramp up of manganese production.
OMM: Adjusted PAT up 86% YoY, led by higher realizations of iron ore,
manganese ore and a ramp up of manganese production
Orissa Manganese & Minerals' (OMM) 3QFY11 adjusted PAT increased 86% YoY
to Rs430m (up 47% QoQ) due to higher manganese volumes and better realizations
of manganese and iron ore.
However, iron ore volumes declined 30% YoY to 213,681 tons, affected by continued
logistics issues (increased monitoring on iron ore movement) and extension of the
monsoons. It included 185k tons of lumps and the rest was fines. OMM sold 53,688
tons of medium/high grade manganese ore, which is expected to be ramped up in
4QFY11 as the company started mining operations in the non-forest area of three of
its new manganese ore mines (Tentulidihi, Sanpatholi and Kusumdihi).
Average iron ore realization increased 25% QoQ to Rs2,867/ton due to strengthening
of iron ore prices, led by a shortage in Orissa. The iron ore market has been tight after
a ban on many mines that undertook illegal mining activity and delays in restarting of
mines of other key local ore producers. The average realization of medium/high grade
manganese ore improved to Rs9,519/ton (up 34% QoQ).
Due to commencement of mining operations at new manganese mines, the management
expects production of ~225k tons in FY11.
The commissioning of a 1.2mtpa beneficiation and pellet plant in Jamshedpur is on
track. The company is targeting production of 0.5m tons in FY12, which will boost
OMM's earnings.
Standalone PAT declines 46% QoQ due to higher raw material costs despite
higher steel volumes; realization down 2% QoQ to Rs33,368/ton
Net sales increased 2% QoQ to Rs3.42b (up 13% YoY) due to higher steel volumes.
Saleable steel sales volumes increased 10% QoQ to 83,555 tons (up 11% YoY). Net
realization of saleable steel declined 2% QoQ to Rs33,368/ton (up 18% YoY).
Saleable steel production increased 12% QoQ to 130,384 tons (down 7% YoY).
However, the proportion of rolled products in 3QFY11 decreased to 31% from 34% in
2QFY11 as the company produced more billets. Billet production increased 17% QoQ
to 89,518 tons (flat YoY) and production of rolled products increased 5% QoQ to
40,866 tons (down 21% YoY).
EBITDA declined 11% QoQ to Rs610m (down 3% YoY) due to an increase in raw
material costs. Iron ore costs per ton increased ~32% QoQ to Rs5,020. EBITDA/tss
(tons of saleable steel) declined 15% (Rs1,147) QoQ to Rs6,644.
A captive iron ore mine in Keonjhar district has been delayed due to procedural issues
in Orissa. The company had been expecting mining to start in 4QFY11, which now
looks ambitious. However, it has received forest and environment clearances and the
area has been demarcated for mining lease.
Ramp up of minerals at OMM, pellet plant to deliver strong earnings growth
With the start of mining operations at OMM's three new manganese mines, the company
plans to increase manganese production to 300k tons (from 143k tons in FY10) over
24 months. The iron mine in Suleipat (owned by its JV) is expected to start operations
in 2011 and ramping up volumes there is expected to be easier than at the existing
Ghatkuri mine. The final stage of reconfirmation approval of the Suleipat mine is
expected by the end of 4QFY11. Initial production will be 1mt a year, augmenting
iron-ore volumes.
The commissioning of a 1.2mtpa beneficiation unit and a pellet plant will expand margins.
The beneficiation plant is expected to be commissioned in 1QFY12 and the pellet
plant is due to be commissioned in 3QFY12.
Rs4.6b capex at Adhunik Metaliks' standalone operations over the next two years to
increase sponge iron ore capacity by 100ktpa, a 45MW CPP and the expected start of
captive iron mines in 2011 will fuel earnings growth.
The commissioning of a 540MW IPP is due to be completed by March 2012, which
will drive earnings from FY13.
We expect consolidated EPS CAGR of 19% to Rs18.8 over FY10-13. The stock
trades at FY12E P/E of 4.7x and EV/EBITDA of 5x. Reiterate Buy with a target
price of Rs154 (based on 6.5x FY12E EV/EBITDA).
Company description
Adhunik Metaliks (AML) is located in the mineral-rich state
of Orissa. Its operations range from iron ore and coal to
finished special steel and forgings and capture the benefits
of the value chain. AML has special steel capacity of
0.45mtpa and a 34MW CPP. The company has captive
iron ore (25mt of reserves) and coal (42mt), which will
become operational in a few years. The merchant mining
business has reserves of 97mt and 53mt of iron and
manganese ore respectively. The subsidiary company is also
setting up a 540MW independent power project by the end
of FY12.
Key investment arguments
Rs4.6b capex of the company's steel business over the
next two years will increase sponge iron ore capacity
by 100ktpa, set up a 45MW CPP and the start of captive
iron mines will fuel earnings growth.
OMM will ramp up iron and manganese ore production.
The recently opened manganese mines and the Suleipat
iron ore mine (owned by a JV), with 80mt reserves,
will drive volume growth. Rs4.4b capex to set up a
1.2mtpa pellet plant by 1HFY12 will expand margins.
The commissioning of a 540MW IPP is on track for
completion by March 2012, which will drive earnings
from FY13.
Key investment risks
An unexpected fall in steel prices and mineral demand
would adversely impact earnings.
Recent developments
Orissa Manganese & Minerals (OMM), a wholly owned
subsidiary of Adhunik Metaliks, started mining
operations in non-forest areas of three of its manganese
ore mines, Tentulidihi, Sanpatholi and Kusunidihi from
November 2010.
Valuation and view
The stock trades at a P/E of 4.7xFY12E and EV/
EBITDA of 5x FY12E. Maintain Buy.
Sector view
Indian steel demand is expected to grow 10-12% over
FY10-12 driven by planned infrastructure investment
by the government and continued industrial capex.
However supply is likely to grow faster over the next
few quarters as many large projects (JSW, Tata, Essar,
RINL and SAIL) are likely to be commissioned. This
will increase the likelihood of aggressive pricing in
domestic markets and can put significant pressure on
margins of non-integrated small scale players. We are
positive about domestic integrated steel players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adhunik Metaliks' 3QFY11 consolidated PAT grew 41% YoY to Rs541m (up 48% QoQ, higher than our estimate of
Rs446m) due to strong iron ore and manganese ore realizations and a ramp up of manganese production.
Orissa Manganese and Mineral's (OMM) PAT increased 86% YoY to Rs430m (up 47% YoY) due to high manganese
volumes and better realizations of manganese and iron ore.
OMM sold 214k tons of iron ore, up 35% QoQ and it sold 54k tons of medium/high grade manganese ore. Average
iron ore realization increased 25% QoQ to Rs2,867/ton due to strengthening of iron ore prices led by a shortage in
Orissa.
With the start of mining operations at three new OMM manganese mines, the company plans to ramp up manganese
production to 300k tons (from 143k tons in FY10) over the next 24 months.
A captive iron ore mine in Keonjhar district has been delayed due to procedural issues in Orissa. The company had
been expecting mining to start in 4QFY11, which now looks ambitious. However, the final stage of reconfirmation
approval of the Suleipat mine (owned by a JV) is expected by the end of 4QFY11. It can start initial production
immediately if the approvals are received.
The commissioning of a 1.2mtpa beneficiation unit and a pellet plant will expand margins. The beneficiation plant is
expected to be commissioned in 1QFY12 and the pellet plant is due to be commissioned in 3QFY12.
We expect consolidated EPS CAGR of 19% to Rs18.8 over FY10-13. The stock trades at FY12E P/E of 4.7x and
EV/EBITDA of 5x. Reiterate Buy with a target price of Rs154 (based on 6.5x FY12E EV/EBITDA).
Adhunik Metaliks' 3QFY11 consolidated PAT grew 41% YoY to Rs541m (up 48%
QoQ; higher than our estimate of Rs446m) due to strong iron ore and manganese ore
realizations and a ramp up of manganese production.
OMM: Adjusted PAT up 86% YoY, led by higher realizations of iron ore,
manganese ore and a ramp up of manganese production
Orissa Manganese & Minerals' (OMM) 3QFY11 adjusted PAT increased 86% YoY
to Rs430m (up 47% QoQ) due to higher manganese volumes and better realizations
of manganese and iron ore.
However, iron ore volumes declined 30% YoY to 213,681 tons, affected by continued
logistics issues (increased monitoring on iron ore movement) and extension of the
monsoons. It included 185k tons of lumps and the rest was fines. OMM sold 53,688
tons of medium/high grade manganese ore, which is expected to be ramped up in
4QFY11 as the company started mining operations in the non-forest area of three of
its new manganese ore mines (Tentulidihi, Sanpatholi and Kusumdihi).
Average iron ore realization increased 25% QoQ to Rs2,867/ton due to strengthening
of iron ore prices, led by a shortage in Orissa. The iron ore market has been tight after
a ban on many mines that undertook illegal mining activity and delays in restarting of
mines of other key local ore producers. The average realization of medium/high grade
manganese ore improved to Rs9,519/ton (up 34% QoQ).
Due to commencement of mining operations at new manganese mines, the management
expects production of ~225k tons in FY11.
The commissioning of a 1.2mtpa beneficiation and pellet plant in Jamshedpur is on
track. The company is targeting production of 0.5m tons in FY12, which will boost
OMM's earnings.
Standalone PAT declines 46% QoQ due to higher raw material costs despite
higher steel volumes; realization down 2% QoQ to Rs33,368/ton
Net sales increased 2% QoQ to Rs3.42b (up 13% YoY) due to higher steel volumes.
Saleable steel sales volumes increased 10% QoQ to 83,555 tons (up 11% YoY). Net
realization of saleable steel declined 2% QoQ to Rs33,368/ton (up 18% YoY).
Saleable steel production increased 12% QoQ to 130,384 tons (down 7% YoY).
However, the proportion of rolled products in 3QFY11 decreased to 31% from 34% in
2QFY11 as the company produced more billets. Billet production increased 17% QoQ
to 89,518 tons (flat YoY) and production of rolled products increased 5% QoQ to
40,866 tons (down 21% YoY).
EBITDA declined 11% QoQ to Rs610m (down 3% YoY) due to an increase in raw
material costs. Iron ore costs per ton increased ~32% QoQ to Rs5,020. EBITDA/tss
(tons of saleable steel) declined 15% (Rs1,147) QoQ to Rs6,644.
A captive iron ore mine in Keonjhar district has been delayed due to procedural issues
in Orissa. The company had been expecting mining to start in 4QFY11, which now
looks ambitious. However, it has received forest and environment clearances and the
area has been demarcated for mining lease.
Ramp up of minerals at OMM, pellet plant to deliver strong earnings growth
With the start of mining operations at OMM's three new manganese mines, the company
plans to increase manganese production to 300k tons (from 143k tons in FY10) over
24 months. The iron mine in Suleipat (owned by its JV) is expected to start operations
in 2011 and ramping up volumes there is expected to be easier than at the existing
Ghatkuri mine. The final stage of reconfirmation approval of the Suleipat mine is
expected by the end of 4QFY11. Initial production will be 1mt a year, augmenting
iron-ore volumes.
The commissioning of a 1.2mtpa beneficiation unit and a pellet plant will expand margins.
The beneficiation plant is expected to be commissioned in 1QFY12 and the pellet
plant is due to be commissioned in 3QFY12.
Rs4.6b capex at Adhunik Metaliks' standalone operations over the next two years to
increase sponge iron ore capacity by 100ktpa, a 45MW CPP and the expected start of
captive iron mines in 2011 will fuel earnings growth.
The commissioning of a 540MW IPP is due to be completed by March 2012, which
will drive earnings from FY13.
We expect consolidated EPS CAGR of 19% to Rs18.8 over FY10-13. The stock
trades at FY12E P/E of 4.7x and EV/EBITDA of 5x. Reiterate Buy with a target
price of Rs154 (based on 6.5x FY12E EV/EBITDA).
Company description
Adhunik Metaliks (AML) is located in the mineral-rich state
of Orissa. Its operations range from iron ore and coal to
finished special steel and forgings and capture the benefits
of the value chain. AML has special steel capacity of
0.45mtpa and a 34MW CPP. The company has captive
iron ore (25mt of reserves) and coal (42mt), which will
become operational in a few years. The merchant mining
business has reserves of 97mt and 53mt of iron and
manganese ore respectively. The subsidiary company is also
setting up a 540MW independent power project by the end
of FY12.
Key investment arguments
Rs4.6b capex of the company's steel business over the
next two years will increase sponge iron ore capacity
by 100ktpa, set up a 45MW CPP and the start of captive
iron mines will fuel earnings growth.
OMM will ramp up iron and manganese ore production.
The recently opened manganese mines and the Suleipat
iron ore mine (owned by a JV), with 80mt reserves,
will drive volume growth. Rs4.4b capex to set up a
1.2mtpa pellet plant by 1HFY12 will expand margins.
The commissioning of a 540MW IPP is on track for
completion by March 2012, which will drive earnings
from FY13.
Key investment risks
An unexpected fall in steel prices and mineral demand
would adversely impact earnings.
Recent developments
Orissa Manganese & Minerals (OMM), a wholly owned
subsidiary of Adhunik Metaliks, started mining
operations in non-forest areas of three of its manganese
ore mines, Tentulidihi, Sanpatholi and Kusunidihi from
November 2010.
Valuation and view
The stock trades at a P/E of 4.7xFY12E and EV/
EBITDA of 5x FY12E. Maintain Buy.
Sector view
Indian steel demand is expected to grow 10-12% over
FY10-12 driven by planned infrastructure investment
by the government and continued industrial capex.
However supply is likely to grow faster over the next
few quarters as many large projects (JSW, Tata, Essar,
RINL and SAIL) are likely to be commissioned. This
will increase the likelihood of aggressive pricing in
domestic markets and can put significant pressure on
margins of non-integrated small scale players. We are
positive about domestic integrated steel players.
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