15 November 2011
2QFY12 Results Update | Sector: Metals
Adhunik Metaliks
BSE SENSEX
S&P CNX
17,119
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,148
ADML IN
123.5
115/40
-19/-42/-46
5.3
0.1
CMP: INR43
TP: INR96
Buy
Adhunik Metaliks (ADML) reported consolidated post tax loss of INR55m for 2QFY12 (v/s our estimate of INR241m
profit) due to high input cost in standalone steel business, and lower volumes and realizations in OMM manganese
operations.
Orissa Manganese & Minerals (OMM) EBITDA declined 52% QoQ (3% YoY) to INR354m. Adjusted PAT decreased
74% QoQ (67% YoY), as both manganese and iron ore volumes suffered due to heavy monsoon. Though mining has
started in Kusumdihi manganese mines, dispatch approval is still pending, leading to build up of 5k tons of inventory
at the mine site.
Manganese volumes were down 57% QoQ to 19k tons while realization declined 10% QoQ to INR6,874/ton.
Iron ore volumes declined 32% QoQ to 210k tons while realization improved 2% QoQ to INR2,875/ton.
Suleipat iron ore mine, a 50:50 joint venture between OMM and Dagara Mines, is expected to start in the current
quarter.
1.2mtpa pellet plant is currently under trial run and is expected to contribute 150k-200k tons of pellet volumes in
FY12.
Standalone adjusted loss of INR268m was on high input cost and flat realizations. External iron ore cost increased
by 15% QoQ to INR4,600/ton while power cost was up ~25% at INR5.10-5.20/unit. Raw material as percentage of
sales increased to 58% from 44% in 1QFY12.
We are downgrading our FY13 EPS estimate by 20% to INR15.9 on muted steel demand (especially from the auto
sector), high interest cost and margin pressure in iron ore and manganese mining. The stock trades at 2.7x FY12E
EPS and at an EV of 5.3x FY12E EBITDA. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com);Tel:+9122 39825412/
Tushar Chaudhari
(Tushar.Chaudhari@MotilalOswal.com); +9122 39825425

Adhunik Metaliks
Mining: EBITDA down 54% QoQ; blended realization down 10% QoQ
Orissa Manganese & Minerals (OMM) EBITDA declined 52% QoQ (3% YoY) to
INR354m. Adjusted PAT decreased 74% QoQ (67% YoY), as both manganese and
iron ore volumes suffered due to heavy monsoon. Though mining has started in
Kusumdihi manganese mines, dispatch approval is still pending, leading to build up of
5k tons of inventory at the mine site.
Manganese volumes were down 57% QoQ to 19k tons while realization declined 10%
QoQ to INR6,874/ton.
Iron ore volumes declined 32% QoQ to 210k tons while realization improved 2% QoQ
to INR2,875/ton.
Suleipat iron ore mine, a 50:50 joint venture between OMM and Dagara Mines, is
expected to start in the current quarter.
1.2mtpa pellet plant is currently under trial run and is expected to contribute 150k-
200k tons of pellet volumes in FY12.
Mn ore realization declining; Fe realization flat (INR/ton)
Manganese Ore
16,000
12,000
8,000
4,000
0
Iron ore
Metallics and billet production improves ('000 tons)
Sponge Iron
100
75
50
25
0
Pig Iron
Billets
Source: Company/MOSL
15 November 2011
2

Adhunik Metaliks
Steel: Standalone adjusted loss of INR268m; downgrading FY13E EPS by
20%
Standalone adjusted loss of INR268m was on high input cost and flat realizations.
External iron ore cost increased by 15% QoQ to INR4,600/ton while power cost was
up ~25% at INR5.10-5.20/unit. Raw material as percentage of sales increased to
58% from 44% in 1QFY12.
Steel production, which was impacted by capacity upgradation shutdown of mini blast
furnace (MBF) last quarter, returned to normal levels. Metallics production increased
29% QoQ to 93k tons while billet production increased 16% QoQ to 83k tons.
Net sales grew 4% QoQ (2% YoY) to INR3.44b on higher steel volumes and flat
blended realization. Net realization of billet was flat QoQ (up 18% YoY) at INR29,801/
ton while rolled steel realization increased 2% QoQ (9% YoY) to INR47,072/ton.
Saleable steel volumes increased 6% QoQ (declined 4% YoY) to 73k tons while auto
sector demand was muted.
Interest cost increased 5% QoQ (50% YoY) to INR 509m on higher interest rate.
Captive iron ore mine located in Kulum in Keonjhar district of Orissa continue to
suffer procedural delay and is not expected to start in the current quarter.
We are downgrading our FY13 EPS estimate by 20% to INR15.9 on muted steel
demand (especially from the auto sector), high interest cost and margin pressure in
iron ore and manganese mining. The stock trades at 2.7x FY12E EPS and at an EV of
5.3x FY12E EBITDA. Maintain
Buy.
15 November 2011
3

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. It
has captive iron ore (25m tons of reserves) and coal (42m
tons) mines, which will become operational in a few years.
The merchant mining business has reserves of 97m tons of
iron and 53m tons of manganese ore. Its subsidiary will set
up a 540MW independent power project in 1QFY13.
Key investment arguments
The coal beneficiation plant has started operations while
the pellet plant is currently under trial run. 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 26% 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
6.2
2.7
0.6
0.5
1.8
1.4
7.0
5.3
Monnet
Ispat
8.7
6.7
1.1
1.0
2.9
2.0
10.9
8.3
Sarda
Energy
7.3
5.4
0.5
0.5
1.3
1.0
9.4
6.3
FY12
FY13
Key investment risks
An unexpected fall in steel prices and mineral demand
will adversely impact ADML's earnings.
Recent developments
Promoter and promoter group of Adhunik Metaliks has
bought 215,947 shares of the company from the open
market in November 2011.
Valuation and view
The stock trades at 2.7x FY12E EPS and at an EV of
5.3x FY12E EBITDA. Maintain
Buy.
Sector view
The steel pricing environment has weakened across
regions due to expected demand slowdown, led by
continued uncertainty in developed nations, high inflation
and resultant softening in economic growth in developing
countries. Chinese steel prices started falling as steel
demand growth slowed due to reduction in new projects.
As a result, steel and its raw material prices are also
expected to fall over the next few months. Apparent
world steel use is expected to increase 6.5% to 1,398mt
in 2011 as per WSA. Indian steel demand growth is
expected to slow to 4.3% in 2011 and 7.9% in 2012.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
6.9
15.9
Consensus
Forecast
12.3
19.4
Variation
(%)
-44.0
-18.1
Target price and recommendation
Current
Price (INR)
43
Target
Price (INR)
96
Upside
(%)
123.3
Reco.
Buy
Stock performance (1 year)
Adhunik Metaliks
120
Sensex - Rebased
Shareholding pattern (%)
Sep-11
Promoter
Domestic Inst
Foreign
Others
55.5
10.0
14.6
19.9
Jun-11
55.5
11.0
16.6
16.9
Sep-10
55.5
13.7
17.4
13.3
90
60
30
Nov-10
Feb-11
May-11
Aug-11
Nov-11
15 November 2011
4

Adhunik Metaliks
Financials and Valuations
15 November 2011
5

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Adhunik Metaliks
No
No
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco
Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
Motilal Oswal Securities Ltd
3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021
Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: reports@motilaloswal.com