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Ess Dee Aluminium’s (Ess Dee) Q3FY12 PAT at INR167mn was
significantly below our expectation. Volumes continued to disappoint,
declining marginally YoY as per our estimates. Management attributed
subdued sales to slower ramp up in production at IFL plants and
slowdown in demand. Outlook for Q4FY12 remains bleak. We maintain
‘HOLD’ with a target price of INR190/share.
Results below expectation
Ess Dee reported a 16% YoY decline in revenue to INR1.6 bn. This was driven largely by
a fall in LME prices (down 11% YoY in USD terms). While management did not disclose
volume numbers, they are likely to have dipped YoY in our view, which is a key
disappointment. EBITDA margin contracted 560bps to 23% due to expenses incurred in
stabilizing IFL plants. Thus, PAT for the quarter at INR167mn was down 56% YoY (27%
below our estimates).
Slow ramp up in volume from IFL plants a concern
Volumes were disappointing for the fourth consecutive quarter. Management
highlighted that it has been cautious in ramping up volumes from IFL plants to keep
quality under control and avoid any undue loss in the process of stabilizing the plants.
They also acknowledged some pressure on demand from pharma companies during
the quarter, but sounded confident of a revival in demand going forward. Volumes are
likely to remain flattish in Q4FY12 and a pick up in volumes is expected only in FY13.
Outlook and valuations: Cautious; maintain ‘HOLD’
We are revising down our EBIDTA estimates 5‐10% for FY12‐13 to factor in the
continued slow ramp up in volumes and lower margins. Ess Dee is currently trading at
FY12E and FY13E P/E of 7.3x and 6.1x, respectively. Our target price of INR190 per
share is based on 6x FY13E P/E. With no visibility of a volume ramp up in the near term
we maintain our ‘HOLD’ recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ess Dee Aluminium’s (Ess Dee) Q3FY12 PAT at INR167mn was
significantly below our expectation. Volumes continued to disappoint,
declining marginally YoY as per our estimates. Management attributed
subdued sales to slower ramp up in production at IFL plants and
slowdown in demand. Outlook for Q4FY12 remains bleak. We maintain
‘HOLD’ with a target price of INR190/share.
Results below expectation
Ess Dee reported a 16% YoY decline in revenue to INR1.6 bn. This was driven largely by
a fall in LME prices (down 11% YoY in USD terms). While management did not disclose
volume numbers, they are likely to have dipped YoY in our view, which is a key
disappointment. EBITDA margin contracted 560bps to 23% due to expenses incurred in
stabilizing IFL plants. Thus, PAT for the quarter at INR167mn was down 56% YoY (27%
below our estimates).
Slow ramp up in volume from IFL plants a concern
Volumes were disappointing for the fourth consecutive quarter. Management
highlighted that it has been cautious in ramping up volumes from IFL plants to keep
quality under control and avoid any undue loss in the process of stabilizing the plants.
They also acknowledged some pressure on demand from pharma companies during
the quarter, but sounded confident of a revival in demand going forward. Volumes are
likely to remain flattish in Q4FY12 and a pick up in volumes is expected only in FY13.
Outlook and valuations: Cautious; maintain ‘HOLD’
We are revising down our EBIDTA estimates 5‐10% for FY12‐13 to factor in the
continued slow ramp up in volumes and lower margins. Ess Dee is currently trading at
FY12E and FY13E P/E of 7.3x and 6.1x, respectively. Our target price of INR190 per
share is based on 6x FY13E P/E. With no visibility of a volume ramp up in the near term
we maintain our ‘HOLD’ recommendation.
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