The attractive valuation is in addition to other fundamental strengths like high margin and return ratios and a strong balance sheet.
We had initiated coverage on IMFA (Indian Metals & Ferro Alloys) sometime ago and the stock continues to impress us post its quarterly earnings report. The company reported a turnaround performance with a net profit of Rs 100 crore in Q1 of FY18 as against a loss of Rs 30 crore in the year ago period which was impacted due to production disruption and lower realisation.
The performance for the quarter gone by was largely driven by recovery in chrome prices. Despite a 6 percent drop in sales volumes to 48,500 tonnes, the company saw 69 percent year-on-year growth in revenues as sales realisations stood at close to Rs 87,000 per tonne as against Rs 51,600 a tonne in Q1 of FY17.
The benefits of operating leverage also kicked in and, consequently, costs actually declined by 2 percent to Rs 247 crore. This translated to higher profitability. The company also saw 328 percent increase in other income thanks to the increasing cash in the books.