Quarterly Result Analysis

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1 Recommendation BUY Snapshot CMP (04/02/2011) Rs. 640 Sector Stock Details BSE Code NSE Code Bloomberg Code Market Cap (Rs. cr) Free Float (%) 52 wk HI/Lo Avg. volume BSE (Monthly) Shares o/s (Crs) Metals IMFA IMFA IN % Rs / Relative Performance 1Mth 3Mth 1Yr 2.63 IMFA 3.4% 18.3% 22.1% Sensex 6.7% 6.6% 14.7% Shareholding Pattern Promoters Holding 54.85% Foreign Promoter Holding 21.6% FII, banks & Institutions 12.75% Corporate Bodies & Trust 4.56% Public & others 6.24% Ruchita Maheshwari, Research Analyst ( ) E mail Id: ruchita.maheshwari@nirmalbang.com IMFA is India's largest, fully integrated producer of Ferro Alloys with 157 MVA installed furnace capacity, 108 MW coal based Captive Power Plant and extensive Chrome Ore mining tracts. Quarterly Result Analysis Standalone Net Sales for Q3FY11 was up by 12.8% at Rs crores as compared to Rs crores in Q3FY10 and was down by 24% from Rs crores in Q2FY11. The major reason for decrease in the net sales on q o q was due to the flat average price realization and substantial reduction in sales volume. In Q3FY11 the company sold around tons whereas in Q2FY11 it sold tons. The company reported an EBITDA of Rs crores in Q3FY11, an increase of 6.4% as compared to Rs crores in Q3FY10 and decreased by 33.3% from Rs crores in Q2FY11. The Company reported an EBITDA margin of 31.4% for Q3FY11 as compared to 33.2% for Q3FY10 and reported 35.8% in Q2FY11. The margin was impacted due to fall in average price realization and significant jump in coke prices. Net Profit for Q3FY11 decreased by 9% to Rs crores as against Rs crores for Q3FY10 and decreased by 48.6% from Rs crores in Q2FY11 due to non availability of MAT credit. The Company has reported an EPS of Rs in Q3FY11 as compared to Rs in Q3FY10 whereas the company has posted an EPS of Rs in Q2FY11. Valuation & Recommendation At current price of Rs. 640 the stock is trading at 6x EV/EBIDTA for FY11E and 5x EV/EBIDTA for FY12E. Whereas on price earning the stock is trading at 9x FY11E EPS of Rs and 6.7x FY12E EPS of Rs Looking at the positive industry scenario for Ferro Chrome, near term benefit of capacity increase and further backward integration with captive coal mine, we recommend to BUY the stock. We have revised our target price of Rs. 928 per share (implying an upside potential of 45%) on account of reduced production guideline for FY11E and FY12E plus delay in commissioning of 30MW power plant and Utkal Coal Block which is expected to get operational by October EBIDTAM (%) PAT PATM (%) EPS (Rs.) P/E(x) P/BV Year Net Sales Growth % EBIDTA FY09A % % % FY10A % % % FY11E % % % FY12E % % %

2 Key Takeaways of Concall: IMFA has commenced the production of tons capacity in Q2FY11, though 30MW of additional power capacity will be operational by the end of march The full effect can be seen from Q1FY12. The coal block under Utkal Coal Ltd. has got stage I clearance in October 2010 and stage II clearance is awaited. The company expects to commission the coal mine in October We believe once the coal mine gets commissioned, will support 108 MW existing power plant, 30MW upcoming power plant and 120MW forthcoming power plant. This will reduce the cost of coal to the company from Rs /ton to Rs. 800/ton. The company has reduced its guidance from 190KT to 180KT of production in FY11E and from 230KT to 210KT 220KT in FY12E. The company has done the production of tons in Q1FY11, tons in Q2FY11 and tons in Q3FY11. The average price realization was Rs per ton in Q3FY11, Rs per ton in Q2FY11 whereas, it was Rs per ton in Q1FY11. The management expects average price realization for FY11E to be Rs to per ton. The management expects average price realization to increase by 10% in FY12E on account of increase in cost of power in South Africa which is the major producer of ferrochrome. Currently, the benchmark price is hovering around $1.05 $1.10 per ton. The 120 MW power plant is progressing as per schedule and its expected to get commissioned in Q4FY12. The full effect can be seen in FY13 earnings. IMFA has sealed a joint venture with POSCO the world s third largest stainless steel producer for producing ferro chrome in India and will supply the entire output from the recently commissioned furnace (35,000 MTPA) as well as 50,000 MTPA under a long term contract. The formal agreement with POSCO was signed recently and is expected to provide a stable platform on the basis of assured off take.

3 Source: Bloomberg & Nirmal Bang Research Source: Bloomberg & Nirmal Bang Research

4 IMFA Q3FY11 Particulars Q3FY11 Q3FY10 YoY(%) Q2FY11 QoQ(%) Gross Sales % % Less: Excise Duty Net Sales % % Other Operating Income Total Income Raw Material Consumed % % Stock Adjustment % % Employee Expenses % % Other Expenses % % TOTAL EXPENDITURE % % EBITDA % % Interest % % Other Income EBDT % % Depreciation % % PBT % % Tax % % Fringe Benefit Tax Deferred Tax % MAT credit set off Reported Profit After Tax % % Extra ordinary Items Adjusted Profit After Extra ordinary item % % EPS (Unit Curr.) Equity PBIDTM(%) 31.4% 33.2% 35.8% PBDTM(%) 25.6% 26.2% 32.5% PATM(%) 12.9% 16.0% 19.1%

5 Financials Profitability (Rs. In Cr) FY09A FY10A FY11E FY12E Financial Health (Rs. In Cr) FY09A FY10A FY11E FY12E Y/E - March Y / E - March Revenues - Net Share Capital % change 14.1% -40.4% 76.6% 28.0% Reserves & Surplus Operating Profit Net Worth % change in OP 60.5% -74.4% 200.5% 26.0% Minority Interest Other Income Total Loans EBITDA Total Liabilities Interest Net Fixed Assets EBDT Investments Depreciation Deferred Tax Assets Extraordinary Inventories PBT Sundry Debtors Tax Cash & Bank PAT Loans & Advances Adj PAT C A L&A Shares o/s ( No. in Cr.) CL & P EPS Working Capital Adj EPS Misc Exp Cash EPS Total Assets DPS (Rs.) Quarterly (Rs. In Cr) Mar.10 Jun.10 Sep.10 Dec.10 Cash Flow (Rs. In Cr) FY09A FY10A FY11E FY12E Revenue Operating ` EBITDA Operating Income Interest Change in WC EBDT Other Adjustment Dep CF from Opeartion Other Inc Investment Extraordinary Capex PBT Other Investment Tax Total Investment PAT Financing EPS (Rs.) Diviend Paid Operational Ratio FY09A FY10A FY11E FY12E Share Capital EBITDA margin (%) 47.1% 24.0% 35.2% 34.1% Premium / Reserve Adj.PAT margin (%) 26.2% 6.9% 17.9% 18.9% Borrowing Adj.PAT Growth (%) 148.9% -84.3% 357.7% 34.9% Other Income Price Earnings (x) Subsidy Rec Book Value (Rs.) Interest ROE (%) 76.9% 7.9% 28.3% 29.9% Tax Paid ROCE (%) 55.0% 10.8% 26.8% 27.8% Total Financing Debt Equity Ratio Price / Book Value (x) Net Chg. in Cash EV / Sales Cash at beginning EV / EBIDTA Cash at end

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