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Faced by twin problems of dropping realisations and rising input costs, IMFA has come out with
disappointing set of numbers for Q2FY12. IMFA’s revenue declined by 4.8% YoY however on a
QoQ basis there is a growth of 9.8% to Rs.2,859.7 mn. Its EBITDA dropped significantly by 84.5%
YoY to Rs.152.4 mn led by substantial rise in input costs by 45% YoY. The EBITDA margin for the
quarter stood at 5.33% vs 32.74% in the corresponding quarter of the previous year. The raw
material cost increase was led by higher coal and met coke costs. Due to seasonal factors
availability of coal was a problem which resulted in higher dependency on e‐auction coal and
imported coal. During the quarter the company relied on 90% e‐auction coal and 10% imported
coal resulting in higher blended coal cost. Met coke prices were rock steady at ~$500/tonne
which is acting as a further deterrent to the company’s performance given the adverse rupee
dollar movement. The company’s power cost has more than doubled to Rs.5.5 per unit on the
back of rise in the thermal coal prices. The company reported a loss of Rs.86.9 mn vs. profit of
Rs.572.4 mn in Q2FY11.
Key Result Highlights:‐
• Ferro‐Chrome production for the quarter stood at ~48,500 tonnes which is up by 19.8% YoY.
The management is maintaining its FY12E guidance of ~210,000 tonnes.
• Its Ferro Chrome sales volume for Q2FY12 stands at ~52,427 tonnes vs. 52,500 tonnes of
Q2FY11.
• Average realization for the quarter stood at ~Rs.55,000/tonne down by 11% QoQ and 2.3%
YoY. Due to ongoing crisis in the European region Ferro Chrome prices have corrected and
are ruling at sub $1/lb (Spot Market). However, thermal coal prices in the domestic market
have started cooling off and the company has started receiving linkage coal from MCL
though in small quantities which will result in marginally lower coal costs on a sequential
basis. The company is looking at a blend of 40‐50% Linkage coal, 40%‐50% e‐auction coal
and ~10% imported coal for H2FY12E which will ease some input cost pressure going
forward.
Future Plans
• Power‐ IMFA is setting up a 120 MW power plant to enter into the power business which
would act as a standby power source for any further capacity expansions. One unit of 2x60
MW power plant is likely to get operational by Q4FY12E. Due to some unfortunate accident
at the plant site the commissioning of balance 60 MW is likely to get delayed by 4‐6 months.
The total capex involved for this power plant is Rs.5,950 mn of which the company has spent
~Rs.4,140 mn till Q2FY12. The company commissioned its 30MW dual fuel captive power
plant in August 2011 and is currently generating about 20MW. The plant is likely to stabilize
in a month’s time.
• Coal ‐ The Company received the stage‐II forest clearance for its Utkal coal block and is well
on track to start the coal mining operations by Q4FY12E. The company is targeting an output
of 1mn tons of coal in the first year which will be further ramped up to ~3mn tons in 3‐4
years. The company would be using this coal for its aforesaid 120 MW power plant as well as
the 138MW captive power plant, thus protecting the company from the vagaries of
fluctuating thermal coal prices. This coal project involves a capital expenditure of Rs.2,480
mn of which the company has invested Rs.2,140 mn till Q2FY12.
OUTLOOK & VALUATION
Indian Metals and Ferro Alloys Ltd (IMFA) is India’s largest fully integrated producer of ferro
chrome with 187 MVA installed furnace capacity capable of producing 275,000 MTPA. Post the
commissioning of the coal mining operations the company is likely to see significant savings in
the power cost which has increased stupendously in the current quarter to Rs.5.5 p.u. However
this saving is likely to accrue only from FY13E. Considering the current trend of rising raw
material costs and falling realisations, we have downward revised our earnings estimates by
54.5% and 55.0% to Rs.22.3 and Rs.33.6 for FY12E and FY13E respectively. However we continue
to maintain our BUY rating on the stock with a revised SOTP based target price of Rs.439 based
on FY13E numbers. We have valued the power business at Rs.81 based on DCF methodology and
metal business at Rs.358 based on 5x FY13E EV/EBITDA
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Faced by twin problems of dropping realisations and rising input costs, IMFA has come out with
disappointing set of numbers for Q2FY12. IMFA’s revenue declined by 4.8% YoY however on a
QoQ basis there is a growth of 9.8% to Rs.2,859.7 mn. Its EBITDA dropped significantly by 84.5%
YoY to Rs.152.4 mn led by substantial rise in input costs by 45% YoY. The EBITDA margin for the
quarter stood at 5.33% vs 32.74% in the corresponding quarter of the previous year. The raw
material cost increase was led by higher coal and met coke costs. Due to seasonal factors
availability of coal was a problem which resulted in higher dependency on e‐auction coal and
imported coal. During the quarter the company relied on 90% e‐auction coal and 10% imported
coal resulting in higher blended coal cost. Met coke prices were rock steady at ~$500/tonne
which is acting as a further deterrent to the company’s performance given the adverse rupee
dollar movement. The company’s power cost has more than doubled to Rs.5.5 per unit on the
back of rise in the thermal coal prices. The company reported a loss of Rs.86.9 mn vs. profit of
Rs.572.4 mn in Q2FY11.
Key Result Highlights:‐
• Ferro‐Chrome production for the quarter stood at ~48,500 tonnes which is up by 19.8% YoY.
The management is maintaining its FY12E guidance of ~210,000 tonnes.
• Its Ferro Chrome sales volume for Q2FY12 stands at ~52,427 tonnes vs. 52,500 tonnes of
Q2FY11.
• Average realization for the quarter stood at ~Rs.55,000/tonne down by 11% QoQ and 2.3%
YoY. Due to ongoing crisis in the European region Ferro Chrome prices have corrected and
are ruling at sub $1/lb (Spot Market). However, thermal coal prices in the domestic market
have started cooling off and the company has started receiving linkage coal from MCL
though in small quantities which will result in marginally lower coal costs on a sequential
basis. The company is looking at a blend of 40‐50% Linkage coal, 40%‐50% e‐auction coal
and ~10% imported coal for H2FY12E which will ease some input cost pressure going
forward.
Future Plans
• Power‐ IMFA is setting up a 120 MW power plant to enter into the power business which
would act as a standby power source for any further capacity expansions. One unit of 2x60
MW power plant is likely to get operational by Q4FY12E. Due to some unfortunate accident
at the plant site the commissioning of balance 60 MW is likely to get delayed by 4‐6 months.
The total capex involved for this power plant is Rs.5,950 mn of which the company has spent
~Rs.4,140 mn till Q2FY12. The company commissioned its 30MW dual fuel captive power
plant in August 2011 and is currently generating about 20MW. The plant is likely to stabilize
in a month’s time.
• Coal ‐ The Company received the stage‐II forest clearance for its Utkal coal block and is well
on track to start the coal mining operations by Q4FY12E. The company is targeting an output
of 1mn tons of coal in the first year which will be further ramped up to ~3mn tons in 3‐4
years. The company would be using this coal for its aforesaid 120 MW power plant as well as
the 138MW captive power plant, thus protecting the company from the vagaries of
fluctuating thermal coal prices. This coal project involves a capital expenditure of Rs.2,480
mn of which the company has invested Rs.2,140 mn till Q2FY12.
OUTLOOK & VALUATION
Indian Metals and Ferro Alloys Ltd (IMFA) is India’s largest fully integrated producer of ferro
chrome with 187 MVA installed furnace capacity capable of producing 275,000 MTPA. Post the
commissioning of the coal mining operations the company is likely to see significant savings in
the power cost which has increased stupendously in the current quarter to Rs.5.5 p.u. However
this saving is likely to accrue only from FY13E. Considering the current trend of rising raw
material costs and falling realisations, we have downward revised our earnings estimates by
54.5% and 55.0% to Rs.22.3 and Rs.33.6 for FY12E and FY13E respectively. However we continue
to maintain our BUY rating on the stock with a revised SOTP based target price of Rs.439 based
on FY13E numbers. We have valued the power business at Rs.81 based on DCF methodology and
metal business at Rs.358 based on 5x FY13E EV/EBITDA
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