Buy Adhunik Metaliks; target of Rs 126: Prabhudas Lilladher

“Adhunik Metaliks (ADML) negatively surprised us with the quantum of fall in the volumes. The company reported a decline of 12% YoY (PLe: 1% YoY) in volumes at 88k (PLe: 99k) tonnes. While, on realisations, ADML met our expectation at Rs35,513 (PLe: Rs35,601)/tn with a rise of 16% YoY/10% QoQ. However, strong realisations were negated by lower volumes and elevated costs of production. ADML reported ~2% YoY growth in EBITDA at Rs644m, below our expectation of Rs682m. However, on PAT level, ADML surpassed our expectation (Rs221m v/s PLe: Rs131m) due to accrual of dividend income from wholly-owned subsidiary, Orissa manganese and minerals (OMM), amounting to Rs180m (PY-Nil, PLe: Nil) despite higher-than-expected interest cost (Rs417m v/s PLe: Rs310m).”
 
 “OMM reported better-than expected EBITDA at Rs851m (PLe: Rs804m), primarily on account of lower costs. Lower-than-expected volumes in manganese (42k v/s PLe: 50k tns) was made up by better realisations (Rs9356 v/s PLe: Rs8500/tn). While, in iron ore, volumes as well as realisations fall in line with expectation at 320k (PLe: 325k) tonne and Rs3,650 (PLe: Rs3,700)/tonne, respectively. Owing to capitalisation of beneficiation plant during the quarter, reported PAT stood much below our expectation (Rs305m v/s PLe: Rs517m) due to higher depreciation and deferred tax liability.”

“Like other mid-cap steel companies, ADML underperformed the BSE-Small cap index due to concerns on its high leverage and sluggish earnings outlook in steel biz. However, we believe that strong earnings in OMM would more than compensate for the weakness in steel biz as well as drive the growth in earnings in FY12. We maintain our ‘BUY’ rating on the stock owing to attractive valuations and rich investment pipeline in power and merchant mining,” says Prabhudas Lilladher research report.

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