11 August 2011
1QFY12 Results Update | Sector: Metals
Adhunik Metaliks
BSE SENSEX
S&P CNX
17,059
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,138
ADML IN
123.5
127/64
-13/-16/-39
7.9
0.2
CMP: INR64
TP: INR134
Buy
Adhunik Metaliks' (ADML) 1QFY11 consolidated PAT (adjusted) declined 24% QoQ to INR284m (down 50% YoY and
below our estimate of INR466m) due to lower steel volumes due to muted demand from the auto sector and lower
manganese realizations (down 18% QoQ). Net sales decreased 16% QoQ (up 9% YoY) to INR4677m.
Planned BF shutdown hits steel production; Manganese ore prices fall
Orissa Manganese & Minerals' (OMM) 1QFY12 EBITDA declined 16% QoQ to INR363m (down 15% YoY) due to
lower manganese ore realization (down 18% QoQ). OMM started dispatches from Kusumdihi manganese ore mine
in August and expects incremental production of 5k tons of manganese in 2QFY12.
Average iron ore realization declined 2% QoQ to INR2,824/ton as the proportion of fines increased 4pp QoQ to 10%.
1.2mtpa beneficiation plant is stabilizing and a pellet plant is expected to be commissioned in 3QFY12. The plant is
expected to contribute 0.3-0.4mt of pellet volumes in FY12.
Standalone adjusted PAT declined 36% QoQ (83% YoY) to INR31m due to lower production, higher interest costs
and muted demand.
Steel production was affected by a one month shutdown of Min Blast Furnace (MBF) for capacity upgrades. MBF
production has now started and capacity increased from 214ktons to 232ktons.
We expect consolidated net sales CAGR of 22% over FY11-13 against a backdrop of the ramp-up in manganese ore
mining (Kusumdihi, Tentulidihi and Sanpatholi), starting of iron ore mines (Suleipat and Kulum) and a 1.2mtpa pellet
plant. The stock trades at FY12E P/E of 4.7x and EV/EBITDA of 6.1x. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com);Tel:+9122 39825412/
Tushar Chaudhari
(Tushar.Chaudhari@MotilalOswal.com); +9122 39825425

Adhunik Metaliks
Mining: EBITDA down 16% QoQ; Manganese volumes flat, blended
realization down 18% QoQ
Orissa Manganese & Minerals' (OMM) 1QFY12 EBITDA declined 16% QoQ to
INR363m (down 15% YoY) due to lower realizations. Manganese ore realization
declined 18% QoQ and sales volumes were up 1% QoQ to 42.8kt.
OMM started dispatches from Kusumdihi manganese ore mine in August and the
company expects incremental production of 5k tons of manganese in 2QFY12. The
new mine will operate at a run rate of 40ktpa. The other two mines Tentulidihi and
Sanpatholi are awaiting dispatch approvals.
Average iron ore realization declined 2% QoQ to INR2,824/ton as the proportion of
fines increased 4pp QoQ to 10%. In 1QFY12 prices of iron ore fines decreased 2%
QoQ to INR1,864/ton while price of lumps declined1% QoQ to INR2,919/ton.
A 1.2mtpa beneficiation plant is stabilizing and ADML expects to commission a pellet
plant is in 3QFY12, which will contribute 0.3-0.4mt of pellet volumes in FY12.
Manganese ore realization down, iron ore realization flat (INR/t)
16,000
12,000
8,000
4,000
0
Manganese Ore
Iron ore
Source: Company/MOSL
11 August 2011
2

Adhunik Metaliks
Billet production down due to BF shutdown for upgrading ('000 tons)
Sponge Iron
79
60
62
50
65
35
34
31
38
28
31
32
42
34
41
33
43
37
42
44
63
43
79
79
88
Pig Iron
85
Billets
80
90
77
89
72
44
45
44
45
53
46
45
27
Source: Company/MOSL
Steel: Standalone adjusted PAT down 36% QoQ on muted demand, higher
interest cost; BF restarts after capacity upgrade
Adjusted PAT declined 36% QoQ ( 83% YoY) to INR31m on lower production, higher
interest cost and muted demand.
Steel production was affected by a shutdown for a month of the Min Blast Furnace
(MBF) for a capacity upgrade. MBF production started after the upgrade and capacity
has been increased from 214ktons to 232ktons.
Net sales decreased 23% QoQ to INR3.32b (up 1% YoY) on lower steel production
though realizations were higher. Net realization of billets increased 2% QoQ to
INR29,3125/ton (up 5% YoY) and rolled steel realization increased 6% QoQ (up 7%
YoY) to INR46,336/t. Saleable steel sales volume declined 17% QoQ to 68,547 tons
(down 10% YoY) on muted demand from the auto sector and lower production. Saleable
steel production decreased 21% QoQ to 104,433 tons (down 8% YoY).
Interest costs increased 17% QoQ (48% YoY) to INR486m due to higher debt and
interest rates.
A captive iron ore mine in Kulum in Keonjhar, Orissa, suffered procedural delay and
is expected to start in 2HFY12.
11 August 2011
3

Adhunik Metaliks
Pellet plant, manganese ore mines ramp up, to deliver strong earnings
growth; Muted auto demand to hit steel business
With the start of mining operations at Kusumdihi manganese mines, manganese ore
production is expected to ramp up to 233k tons in FY13, providing volume growth.
However manganese ore realization will be subdued in line with international prices.
The coal beneficiation plant has started operations and is stabilizing and the pellet
plant is expected to start operations in 3QFY12. A 540MW IPP in subsidiary Adhunik
Power & Natural Resources (APNR) is due to be complete by 1QFY13. The
commissioning of the beneficiation and power plants will expand margins.
Underperformance of the steel segment is expected over the next few quarters on
sluggish auto demand, and we expect ADML standalone profit to decline 31% YoY in
FY12. However the start of captive iron ore mines could act as a major trigger for the
stock after the iron ore mining ban in Karnataka. The scarcity of iron ore will support
steel and iron ore prices and margins for backward integrated producers.
We expect net sales of 22% CAGR over FY11-13 against a backdrop of ramp up in
manganese ore mining (Kusumdihi ,Tentulidihi and Sanpatholi), starting of iron ore
mines (Suleipat and Kulum) and a 1.2mtpa pellet plant. The stock trades at FY12E
P/E of 4.7x and EV/EBITDA of 6.1x. Maintain
Buy.
11 August 2011
4

Adhunik Metaliks
Adhunik Metaliks: an investment profile
Company description
Adhunik Metaliks (ADML) is located in the mineral-rich
state of Orissa and its integrated operations, ranging from
iron ore and coal to finished special steel and forgings,
capture all the benefits of the value chain. ADML has
special steel capacity of 0.45mtpa and a 34MW CPP.
ADML has captive iron ore (25mt of reserves) and coal
(42mt), which will become operational in a few years. The
merchant mining business has reserves of 97mt and 53mt
of iron and manganese ore respectively. Its subsidiary will
set up a 540MW independent power project in 1QFY13.
Key investment arguments
The coal beneficiation plant has started operations and
is stabilizing and the pellet plant is expected to start
operation in 3QFY12. A 540MW IPP in subsidiary
Adhunik Power & Natural Resources (APNR) is due
to be complete by 1QFY13. The commissioning of pellet
and power plants will expand margins.
We estimate net sales CAGR of 22% over FY11-13
against the backdrop of ramp up in manganese ore
mining (Kusumdihi ,Tentulidihi and Sanpatholi), starting
of iron ore mines (Suleipat and Kulum) and a 1.2mtpa
pellet plant.
Comparative valuations
Adhunik
Metaliks
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
4.7
3.2
0.8
0.6
2.0
1.6
6.1
5.0
Monnet
Ispat
13.1
8.7
1.3
1.2
3.3
2.1
14.4
9.6
Sarda
Energy
11.3
8.7
0.7
0.7
1.6
1.1
10.9
7.6
FY12
FY13
Key investment risks
An unexpected fall in steel prices and mineral demand
will adversely impact ADML's earnings.
Recent developments
Adhunik Metaliks has signed a mining lease deed for
30 years with the Orissa Government for its captive
iron ore mine (allotted for its standalone steel business)
situated in Keonjhar, Orissa.
Valuation and view
The stock trades at a P/E of 4.7x FY12E and EV/
EBITDA of 6.1x FY12E. Maintain
Buy.
Sector view
The steel pricing environment weakened due to demand
uncertainty led by political crisis, the European debt crisis
and inflation in developing countries. Recently, prices
started consolidating, as raw material prices were firm.
Apparent world steel use is likely to increase 5.9% to
1,359mt in 2011 according to WSA. We expect Indian
steel demand to grow 12-14% over 2010-12 due to the
government's planned infrastructure investment and
strong domestic consumption. However, raw material
scarcity and incremental capacity addition could put
pressure on margins. In 1HCY11world crude steel
production increased 7.6% YoY to 758mt.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
13.7
19.9
Consensus
Forecast
17.3
21.3
Variation
(%)
-20.9
-6.5
Target price and recommendation
Current
Price (INR)
64
Target
Price (INR)
134
Upside
(%)
109.4
Reco.
Buy
Stock performance (1 year)
Adhunik Metaliks
140
Sensex - Rebased
Shareholding pattern (%)
Jun-11
Promoter
Domestic Inst
Foreign
Others
55.5
11.0
16.6
16.9
Mar-11
55.5
11.0
17.8
15.7
Jun-10
55.5
14.5
16.7
13.2
120
100
80
60
Aug-10
Nov-10
Feb-11
May-11
Aug-11
11 August 2011
5

Adhunik Metaliks
Financials and Valuations
11 August 2011
6

Adhunik Metaliks
N O T E S
11 August 2011
7

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Adhunik Metaliks
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