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Three-pronged strategy to drive earnings growth
Adhunik is in the business of mining iron ore and manganese ore and producing
special steel. It is also entering the power business. Its mining business is a cash
cow, but its steel business' margins have been under pressure. Captive iron ore mines
will improve the margins of steel business. Its power business (61% stake in APNR)
will start generating cash flows in FY13.
Mining: cash flows strong; to grow further
Adhunik's wholly-owned subsidiary, OMM's Ghatkuri iron ore mine is operational
since January 2009 with high grade reserves of 60-64% Fe content, lumps to fines
ratio of 70:30 and approved mining plan for 2mtpa. Its stripping ratio is very low
due to absence of overburden, enabling cost saving. Its iron ore production is
expected to rise from 1.1m tons in FY11 to 1.5m tons in FY13.
It has recently entered into equal partnership with the erstwhile promoters of Suleipat
mine located at Mayurbhanj, Orissa (90km from Jamshedpur, 80m tons of reserves
with 64 Fe grade ore). The total mining area is ~618 hectares, which includes 200
hectares of non-forest land. The Central Empowered Committee (CEC) has already
approved mining operations in 70 hectares of non-forest area, with a mining plan of
0.6mtpa. The company is now awaiting state approval and final clearance from the
Environmental Ministry for commencement of mining operations. The management
expects to start operations from 1QFY12 and has already placed orders for the
requisite mining equipment.
Its open-cast manganese mine (Patmunda) is operational since January 2008,
with approved mining plan of 0.36mtpa. It plans to increase manganese ore
production at Patmunda through further mechanization. It has also recently started
mining operations in the non-forest area of its three other mines, which will drive
volumes further. Manganese ore production is expected to rise from 151k tons in
9MFY11 to 300k tons in FY13.
A 1.2mtpa beneficiation and pellet plant (based on straight grate technology) to
convert iron ore fines into pellets is being set up at Jamshedpur at a capex of
Rs4.4b. Till date, Rs2.9b is already invested in the plant and all the equipment has
arrived at the plant site. The company expects to commission the beneficiation
unit in 1QFY12 and pellet plant in 3QFY12.
Special steel: captive mine and Rs4.5b capex to drive growth
Standalone steel operations (located at Rourkela) cater to the automobile, power,
engineering, hydrocarbon and construction sectors. Operating efficiencies are superior
due to the incorporation of a blast furnace, sponge iron, sinter plant and coke ovens in
the electric route of steel making. Rs4.6b capex to increase sponge iron ore capacity
by 100ktpa and 45MW CPP and captive iron ore mine will fuel earnings growth. Captive
iron ore mine has received forest and environment clearances and area has been
demarcated for mining lease. Opening of mine, though delayed repeatedly, is now
scheduled for 1QFY12.
Entering merchant power business
APNR, in which Adhunik has 61% stake, is setting up a 540MW independent power
project (IPP) at a capex of Rs26.5b at Jharkhand. The entire debt has been tied up and
two private equity players have already put in Rs3.75b for 39% stake. Environmental
clearance for the first unit of 270MW has been received and commissioning is likely by
1QFY13. The company plans to double the capacity at its existing location through
brownfield expansion.
Valuations attractive
We believe Adhunik is on a strong earnings growth path on the back of rich mineral
resources and focus on growth. Over FY11-13, manganese ore production will grow at a
CAGR of 18% to 300k tons and iron ore production at a CAGR of 22% to 1.5m tons.
Commissioning of pellet plant and captive iron ore mine will help expand margins further.
We expect earnings to grow at a CAGR of 19% over FY10-13 without considering estimates
of Suleipat iron ore mine and 540MW IPP. The stock is trading at an EV of 5x FY12E
EBITDA. Re-iterate Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Three-pronged strategy to drive earnings growth
Adhunik is in the business of mining iron ore and manganese ore and producing
special steel. It is also entering the power business. Its mining business is a cash
cow, but its steel business' margins have been under pressure. Captive iron ore mines
will improve the margins of steel business. Its power business (61% stake in APNR)
will start generating cash flows in FY13.
Mining: cash flows strong; to grow further
Adhunik's wholly-owned subsidiary, OMM's Ghatkuri iron ore mine is operational
since January 2009 with high grade reserves of 60-64% Fe content, lumps to fines
ratio of 70:30 and approved mining plan for 2mtpa. Its stripping ratio is very low
due to absence of overburden, enabling cost saving. Its iron ore production is
expected to rise from 1.1m tons in FY11 to 1.5m tons in FY13.
It has recently entered into equal partnership with the erstwhile promoters of Suleipat
mine located at Mayurbhanj, Orissa (90km from Jamshedpur, 80m tons of reserves
with 64 Fe grade ore). The total mining area is ~618 hectares, which includes 200
hectares of non-forest land. The Central Empowered Committee (CEC) has already
approved mining operations in 70 hectares of non-forest area, with a mining plan of
0.6mtpa. The company is now awaiting state approval and final clearance from the
Environmental Ministry for commencement of mining operations. The management
expects to start operations from 1QFY12 and has already placed orders for the
requisite mining equipment.
Its open-cast manganese mine (Patmunda) is operational since January 2008,
with approved mining plan of 0.36mtpa. It plans to increase manganese ore
production at Patmunda through further mechanization. It has also recently started
mining operations in the non-forest area of its three other mines, which will drive
volumes further. Manganese ore production is expected to rise from 151k tons in
9MFY11 to 300k tons in FY13.
A 1.2mtpa beneficiation and pellet plant (based on straight grate technology) to
convert iron ore fines into pellets is being set up at Jamshedpur at a capex of
Rs4.4b. Till date, Rs2.9b is already invested in the plant and all the equipment has
arrived at the plant site. The company expects to commission the beneficiation
unit in 1QFY12 and pellet plant in 3QFY12.
Special steel: captive mine and Rs4.5b capex to drive growth
Standalone steel operations (located at Rourkela) cater to the automobile, power,
engineering, hydrocarbon and construction sectors. Operating efficiencies are superior
due to the incorporation of a blast furnace, sponge iron, sinter plant and coke ovens in
the electric route of steel making. Rs4.6b capex to increase sponge iron ore capacity
by 100ktpa and 45MW CPP and captive iron ore mine will fuel earnings growth. Captive
iron ore mine has received forest and environment clearances and area has been
demarcated for mining lease. Opening of mine, though delayed repeatedly, is now
scheduled for 1QFY12.
Entering merchant power business
APNR, in which Adhunik has 61% stake, is setting up a 540MW independent power
project (IPP) at a capex of Rs26.5b at Jharkhand. The entire debt has been tied up and
two private equity players have already put in Rs3.75b for 39% stake. Environmental
clearance for the first unit of 270MW has been received and commissioning is likely by
1QFY13. The company plans to double the capacity at its existing location through
brownfield expansion.
Valuations attractive
We believe Adhunik is on a strong earnings growth path on the back of rich mineral
resources and focus on growth. Over FY11-13, manganese ore production will grow at a
CAGR of 18% to 300k tons and iron ore production at a CAGR of 22% to 1.5m tons.
Commissioning of pellet plant and captive iron ore mine will help expand margins further.
We expect earnings to grow at a CAGR of 19% over FY10-13 without considering estimates
of Suleipat iron ore mine and 540MW IPP. The stock is trading at an EV of 5x FY12E
EBITDA. Re-iterate Buy.
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