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Adhunik Metaliks
Investment Rationale
OMML, 100% Subsidiary, Drives Future (FY13 Onwards) Growth:
• Merchant Pellet Plant to Boost Earnings: Orissa Manganese and Mineral Limited,
(OMML), plans to begin commercial operations of its 1.2 mtpa merchant pellet
plant in H2 FY12. This business is expected to generate attractive profit margins as it
converts inexpensive low-grade iron ore fines, sourced from local markets, to high
value pellet for merchant sales. Based on capacity ramp up, the pellet business is
expected to contribute ~46% to OMML’s EBITDA in FY13.
• Suleipat Merchant Mine to Supplement Iron Ore Sales: OMML is also expected
to begin dispatches from its 50:50 JV, Suleipat merchant iron ore mine, from
H2 FY12. This mine has environmental clearance (EC) for 0.6 mtpa and has applied
for further EC for 3.0 mtpa. Based on this, the company plans to produce ~0.25
million tons of iron ore in FY12 and ramp up to 1.5 mtpa by FY13. Taking into account
the existing operating mine at Ghatkuri we expect segment’s iron ore sales
volume to grow by ~22% CAGR in FY11-13.
• Production Stabilization to Improve Mn Ore Sales from H2 FY12: OMML
reported ~37% y-o-y decline in Manganese ore (Mn) sales in H1 FY12 due to heavy
monsoon in Orissa. However, it is expected to report better sales volume from H2
FY12 on account of production stabilization.
Commencement of Captive Iron Ore Mine to Improve Steel Business Margins:
Adhunik’s standalone steel business’ EBITDA margin is expected to improve to 11.4% in
FY13 from ~4.8% in Q2 FY12, on account of captive Keonjhar iron ore mine beginning
commercial operations from Q4FY12 and expected moderation in coking coal prices.
The company plans to produce ~50,000 tons of iron ore from Keonjhar mine in FY12
and ramp up to 0.4 million tons per annum (mtpa) by FY14 (representing ~48% of total
requirement).
Outlook & Valuation: We expect Adhunik to report weak earnings in FY12 due to low
profit margins in steel business and declining ore pricing. However, we expect earnings to
improve subsequently on account of contributions from pellet plant, Suleipat (Merchant)
and Keonjhar (Captive) iron ore mines and declining coking coal prices. Based on attractive
valuation and better earnings prospect from FY13, we maintain BUY rating on
the stock with a price target of `78. We have used the SOTP method to arrive at a 12M
price target of `78 for Adhunik.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adhunik Metaliks
Investment Rationale
OMML, 100% Subsidiary, Drives Future (FY13 Onwards) Growth:
• Merchant Pellet Plant to Boost Earnings: Orissa Manganese and Mineral Limited,
(OMML), plans to begin commercial operations of its 1.2 mtpa merchant pellet
plant in H2 FY12. This business is expected to generate attractive profit margins as it
converts inexpensive low-grade iron ore fines, sourced from local markets, to high
value pellet for merchant sales. Based on capacity ramp up, the pellet business is
expected to contribute ~46% to OMML’s EBITDA in FY13.
• Suleipat Merchant Mine to Supplement Iron Ore Sales: OMML is also expected
to begin dispatches from its 50:50 JV, Suleipat merchant iron ore mine, from
H2 FY12. This mine has environmental clearance (EC) for 0.6 mtpa and has applied
for further EC for 3.0 mtpa. Based on this, the company plans to produce ~0.25
million tons of iron ore in FY12 and ramp up to 1.5 mtpa by FY13. Taking into account
the existing operating mine at Ghatkuri we expect segment’s iron ore sales
volume to grow by ~22% CAGR in FY11-13.
• Production Stabilization to Improve Mn Ore Sales from H2 FY12: OMML
reported ~37% y-o-y decline in Manganese ore (Mn) sales in H1 FY12 due to heavy
monsoon in Orissa. However, it is expected to report better sales volume from H2
FY12 on account of production stabilization.
Commencement of Captive Iron Ore Mine to Improve Steel Business Margins:
Adhunik’s standalone steel business’ EBITDA margin is expected to improve to 11.4% in
FY13 from ~4.8% in Q2 FY12, on account of captive Keonjhar iron ore mine beginning
commercial operations from Q4FY12 and expected moderation in coking coal prices.
The company plans to produce ~50,000 tons of iron ore from Keonjhar mine in FY12
and ramp up to 0.4 million tons per annum (mtpa) by FY14 (representing ~48% of total
requirement).
Outlook & Valuation: We expect Adhunik to report weak earnings in FY12 due to low
profit margins in steel business and declining ore pricing. However, we expect earnings to
improve subsequently on account of contributions from pellet plant, Suleipat (Merchant)
and Keonjhar (Captive) iron ore mines and declining coking coal prices. Based on attractive
valuation and better earnings prospect from FY13, we maintain BUY rating on
the stock with a price target of `78. We have used the SOTP method to arrive at a 12M
price target of `78 for Adhunik.
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