CRISIL maintains fair value of Rs 195 to Maithan Alloys

Maithan Alloys Ltd’s (Maithan’s) Q3FY12 revenues were above CRISIL Research’s expectations while earnings were slightly below. Increase in trading sales contributed to the strong revenue growth but lowered blended margin. The company commissioned its 120,000 MTPA capacity at Vizag SEZ in January, 2012 - we had expected it in Q3FY12. We may lower our estimates post our interaction with the management. We maintain the fundamental grade of 3/5.

Q3FY12 result analysis (standalone)
• Net sales increased 29% y-o-y (up 31% q-o-q) to Rs 1,904 mn on account of higher trading sales. Trading sales contributed ~27% to gross sales.

• EBITDA margin contracted by 321 bps y-o-y (down 420 bps q-o-q) to 10.2% on account of higher share of low margin trading sales.

• The company has expensed Rs 24.7 mn as a part of the provisional arrear power bill of Rs 98 mn. The bill was raised by Damodar Valley Corporation for the period May 2010 to March 2011, based on final tariff order. So far, the company has expensed Rs 73 mn and the remaining Rs 25 mn will be expensed in Q4FY12.

• The company has reported 12% q-o-q (39% y-o-y) decline in the depreciation expense on account of capital subsidy received from the government. Its depreciation expense was Rs 17 mn as compared to Rs 19 mn in Q2FY12.

• PAT declined by 35% y-o-y and 7% q-o-q to Rs 129 mn, largely in line with operating margins. The company reported higher interest cost of Rs 13 mn as compared to Rs 3 mn in Q2FY12 on account of increase in working capital requirements due to higher sales.

• The company has reported EPS of Rs 8.9 as compared to Rs 11.2 in Q2FY12 and Rs 11.4 in Q3FY11.

Valuations: Current market price has strong upside
Considering the cyclical nature of the business, we continue to use EV/EBITDA method to value Maithan. We arrive at a fair value of Rs 195 per share. At CMP of Rs 105 per share out valuation grade is 5/5.

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