Adhunik Metaliks, Hold Target :Rs 58:: ICICI Securities, pdf link

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P e r f o r m s   w e l l   o p e r a t i o n a l l y …
Adhunik Metaliks’ (AML) Q3FY12 performance was broadly above our
expectations. Consolidated net sales came in at | 476.6 crore (growth of
9.5% YoY and 6.4% QoQ) in line with our expectation of | 475.1 crore.
The consolidated EBITDA margin during the quarter under review was at
25.6%, higher by 760 bps QoQ but lower by 810 bps YoY (our
expectation: 23.0%). The standalone EBITDA increased sharply by 1440
bps QoQ to 19.2% in Q3FY12 as compared to 4.8% in Q2FY12. As a
result, the subsequent consolidated EBITDA came in at | 122.0 crore (I
direct estimate: | 109.3 crore) recording a dip of 16.8% YoY but higher by
51.5% QoQ. The ensuing consolidated PAT came in at | 23.1 crore.
ƒ Operational performance
In the standalone entity, overall sales volumes increased 12% QoQ
to 94696 tonnes. The sized ore sales volumes were higher by 28.8%
QoQ to 228546 tones while the manganese ore sales volumes were
also lower by 32% QoQ to 12656 tonnes.
V a l u a t i o n
We have valued the stock on an SOTP basis where we have valued AML
at 5.0x FY13E EV/EBITDA, Orissa Manganese & Minerals Ltd (OMML) at
4.5x FY13E EV/EBITDA and taken a  20% holding company discount for
valuing the investment in the power business. Subsequently, we have
arrived at a target price of | 58 and maintained our HOLD rating.

BUY Adhunik Metaliks Investment Rationale ::ULJK

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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.

Hold Adhunik Metaliks; Target : Rs 37 :: ICICI Securities

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D i s m a l   p e r f o r m a n c e …
Adhunik Metaliks’ (AML) Q2FY12 performance was broadly below our
expectation, primarily on the back of subdued EBITDA margins. The
consolidated net sales came in at | 448.0 crore (growth of ~18.3% YoY
and a decline of 3.3% QoQ) as against our expectation of | 393.4 crore.
The iron & steel segment contributed ~| 344.1 crore whereas mining
contributed | 78.9 crore. On the back of higher operating costs, the
consolidated EBITDA came below our estimate at | 80.5 crore (I direct
estimate: | 101.4 crore) registering a dip of ~24.9% YoY and ~44.9%
QoQ. Overall EBITDA margins declined sharply by 1033 bps YoY and
1353 bps QoQ to 18.0% (our estimate: 25.8%). This was mainly due to
higher raw material costs viz. power, iron ore and coal at the standalone
entity wherein the standalone EBITDA margin came at 4.8%.
Furthermore, there was a sharp increase in interest costs (up 69.4% YoY
and 10.7% QoQ) and depreciation  charges (25.2% YoY) during the
quarter under review. As a result, the ensuing consolidated loss came in
at ~| 5.5 crore.
ƒ Subdued sales volumes
Sales volumes during the quarter under review were subdued on
the back of a muted demand scenario. In the standalone entity, the
overall sales volumes declined 7% YoY to 84851 tonnes. The
manganese ore sales volumes were also lower by 56.6% QoQ and
54.3% YoY to 18569 tonnes while the sized ore sales volumes were
lower by 28.8% QoQ to 200896 tones.
V a l u a t i o n
We have valued the stock on SOTP basis where we have valued AML at
4.4x FY13E EV/EBITDA, OMML at 4.5x FY13E EV/EBITDA and taken a 20%
holding company discount for valuing investment in power business.
Subsequently we have arrived at a target price of | 37 and maintained our
HOLD rating.

Hold Adhunik Metaliks; Target :rs 63::ICICI Securities

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M i n i n g   a n d   e x e c u t i o n   h o  l d  s   t h e   k e  y …
Adhunik Metaliks’ (AML) Q1FY12 consolidated net sales came in at | 463.5
crore (growth of ~8.2% YoY against a decline of ~16% QoQ) as against our
expectation of | 491.2 crore. Sales volumes came in lower than our
estimates but higher realisations aided the topline. The iron and steel
segment contributed ~| 372 crore whereas mining contributed | 120 crore.
The consolidated EBITDA came above our estimate at | 146 crore (I direct
estimate: | 115 crore) registering a dip of ~3.8% YoY and ~10.5% QoQ.
Overall EBITDA margins declined 391 bps YoY and 193 bps QoQ. This was
mainly due to higher raw material costs viz. power, iron ore and coal at the
standalone entity whereas at its subsidiary, expenses relating to the iron
ore beneficiation plant led to lower EBITDA. Consolidated PAT came in at
~|  28.4 crore against our expectation of |  26.5 crore (down ~49.7% YoY
and ~24% QoQ). This was largely due to an increase in the interest cost
and depreciation cost.
ƒ Volumes lower as plant underwent technical upgradation
During the quarter, the company had undertaken technical
upgradation of its mini blast furnace plant to de-bottleneck its capacity
from 2,13,792 tonnes to 2,13,608 tonnes. This has led to lower
production of pig iron, in turn leading to lower sales.
ƒ Project update
During the quarter, the company started trial runs of its 1.2 million
tonne (MT) pellet plant and expects commercial production to start by
September 2011. Also, AML has signed the mining lease for its Kulum
mine and the mine development process is expected to start soon.
On the power business, the implementation of 540 MW is progressing
as per schedule and phase I of 270 MW is expected by March 2012.
V a l u a t i o n
We have valued  the  stock on an SOTP basis where we have valued AML at
4.4x FY13E EV/EBITDA and OMML at  4.5x FY13E EV/EBITDA. We have
valued the investment in the power business at | 21.3/share where we have
given a 25% holding company discount. We have arrived at a target price of
| 63 and maintained our HOLD rating.

Buy Adhunik Metaliks: Three-pronged strategy to drive earnings growth -Motilal Oswal

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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.

Buy Adhunik Metaliks: 3QFY11 Results Update: Motilal oswal,

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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.

Buy Adhunik Metaliks;; Target :Rs109:: ICICI Securities,

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Adhunik Metaliks:: Good show by mining segment…
Adhunik Metaliks’ Q3FY11 results came in better than our estimates.
The topline improved ~16% YoY and remained flat QoQ at | 435 crore
against the expected | 423 crore. On the revenue front, the iron and
steel segment contributed ~| 356 crore, growing ~ 13% YoY. OMML’s
revenues grew a robust 86% YoY at | 112 crore due to higher
manganese ore sales volumes and realisations. Consolidated EBITDA
fell ~1170 bps YoY and ~300 bps QoQ due to higher raw material costs
for coke and iron ore. Consolidated PAT for Q3FY11 came in at~ | 54
crore against the expected | 43 crore (up ~116% YoY and down ~4%
QoQ) despite higher interest cost (up ~60% YoY and 12% QoQ). With
the ramping up of mining activities both in iron ore and manganese ore
and commissioning of 540 MW power plant by March 2012, we maintain
our positive outlook on the company. Also, have revised our target price
to | 109, with a BUY rating.

Adhunik Metaliks:Mining and power to lead the way: ICICI Sec

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Adhunik Metaliks



Mining and power to lead the way…
Adhunik Metaliks’ Q2FY11 results came in a tad lower than our
estimates. The topline remained flat at | 378 crore (up ~1% YoY and
down ~11% QoQ) against expected | 390 crore. On the revenue front,
the iron and steel segment contributed ~| 344 crore growing just 0.4%
YoY. OMML’s revenues grew by a robust 56% YoY at | 65 crore due to
higher manganese ore sales volumes and realisations. Consolidated
EBITDA improved by ~630 bps YoY but declined by ~840 bps QoQ due
to higher raw material costs for coke and iron ore. Consolidated PAT for
Q2FY11 came in at | 32 crore against expected | 43 crore (up ~31% YoY
and down ~42% QoQ) due to higher interest cost (up ~38% YoY). With
the ramping up of mining activities both in iron ore and manganese ore
and commissioning of the 540 MW power plant by March 2012, we
maintain our positive outlook on the company and revise our target
price to | 132, with a BUY rating.