4QFY17 Result Update June 06, 2017 Market Cap. (Rs bn) 45 Free Float (%) 24 Shares O/S (mn) 133 Mixed Quarterly Performance; Volume to Remain Strong has reported a mixed performance in 4QFY17. Its blended sales realisation zoomed 119% YoY and 20.4% QoQ to Rs11,309/tonne (vs. our estimate Rs9,250), while sales volume fell by 43% YoY and 38% QoQ to 2.16 lakh tonne vs. our estimate of 3.55 lakh tonne. Notably, liquidated substantial inventory in 3QFY17, as production at 2.72 lakh lagged sales by a wide margin. Though its EBITDA declined by 7% QoQ to Rs1.21bn (vs. Rs57mn loss in 4QFY16), EBITDA margins rose by 1,134bps YoY to 48.2% (vs. our estimate of 39.8%). Adjusted PAT surged by 442% YoY and 14.2% QoQ to Rs1.15bn (vs. our estimate of Rs1.28bn) despite other income rising by 66% QoQ and 13% YoY to Rs660mn. undertook price cuts in Jan-Feb 17, the impact of which will be felt in 1QFY18. However the volumes are likely to be strong, while realisation is expected to remain relatively weak, going forward. Hence, we expect to sustain the robust performance at least till FY18E-end. Introducing our estimates for FY19E, we maintain our recommendation on the stock with a revised Target Price of Rs 406 (Rs409 earlier). Share price (%) 1 mth 3 mth 12 mth Absolute performance 3.1 2.5 42.4 Relative to Nifty (1.1) (6.2) 24.7 Shareholding Pattern (%) Dec'16 Mar'17 Promoter 75.6 65.6 Public 24.4 34.4 1 Year Stock Price Performance 475 425 Stronger Prices aid EBITDA Sales volumes had zoomed by 154% YoY and 12% QoQ to 3.48 lakh tonne in 3QFY17 due to inventory liquidation. However, in 4QFY17 volumes declined by 43% YoY and 38% QoQ to 2.16 lakh tonne. The global manganese ore prices remained under pressure in CY15 and 1HCY16 due to oversupply, but measures i.e. downsizing production and planned shut-down of highcost mines aided the prices to stabilize. Further, increased demand in China and improved sentiment also helped manganese ore prices, which started recovering significantly. Global manganese ore prices have almost trebled since Aug 16. This resulted in blended realisation increasing by a steep 119% YoY and 20% QoQ to average at Rs11,309/tonne in the quarter under review. This was also aided by strong demand in China due to which, overseas offers for India fell sharply and helped lifting the domestic prices benefiting. 375 325 275 225 175 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Oct-16 Nov-16 Dec-16 Note: * CMP as on June 05, 2017 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Outlook & Valuation Looking ahead, we believe that the volume would recover amid firm realisation s owing to higher domestic steel production and sharp rally in global manganese prices. We have tweaked our numbers to factor in the changing scenario. We expect strong cash flow generation to continue due to low capex. Net cash is slated to rise to Rs195/share (~58% of current Mkt. Cap) by FY19E (post considering Rs8.63bn incurred towards share buy-back). is likely to sustain robust performance at least till FY18E-end which provides headroom for meaningful upside in stock price despite the recent run-up. Introducing estimates for our FY19E, we maintain our recommendation on the stock with a revised Target Price of Rs406 (Rs409 earlier). Key Financials (Rs mn) FY16 FY17 FY18E FY19E Sales 6,580 9,898 10,040 11,291 EBITDA 1,711 2,955 4,518 5,126 Net profit 2,889 3,058 4,298 4,898 EPS (Rs) 17.2 23 32.3 36.8 DPS (Rs) 9 11 12 15 P/E (x) 19.5 14.6 10.4 9.1 P/B (x) 1.6 1.6 1.4 1.3 EV/EBITDA (x) 15.5 12 7.3 6 ROE (%) 8 10.9 13.8 14.2 Div.yield (%) 2.7 3.3 3.6 4.5 Research Analyst: Kunal Motishaw Contact: (022) 33201328 Email: kunal.motishaw@relianceada.com 1
Risks to the View ff Lower-than-estimated manganese ore prices. ff Appreciation of INR against the Greenback. ff Significant increase in manganese ore imports. Exhibit 1: Quarterly Performance (Rs mn) 4QFY17 4QFY16 % yoy 3QFY17 % qoq Gross Sales 2,527 2,110 19.8 3,553 (28.9) EBITDA 1,218 (57) 1,309 (7.0) Other income 660 585 12.9 399 65.7 PBIDT 1,878 528 255.9 1,707 10 Depreciation 165 144 15.1 133 23.9 Interest - - - PBT 1,713 384 345.9 1,574 8.8 Tax 555 170 225.7 560 (0.9) Adjusted PAT 1,158 214 441.7 1,014 14.2 Extra ordinary income/ (exp.) - Reported PAT 1,158 214 441.7 1,014 14.2 No. of shares (mn) 133 133 133 EBITDA margins (%) 48.2 (2.7) 36.8 - PBIDT margins (%) 74.3 25 48.1 - Adj. EPS - non annualized (Rs.) 8.7 1.6 7.6 Effective tax rate % 32.4 44.4 35.6 Exhibit 2: Operational Overview (Rs mn) 4QFY17 4QFY16 % yoy 3QFY17 % qoq Production Fines 50,000 37,000 35.1 53,000 (5.7) Non-fines 234,000 250,000 (6.4) 219,000 6.8 Total Production 284,000 287,000 (1.0) 272,000 4.4 Product mix (%) Fines 17.6 12.9 19.5 Non-Fines 82.4 87.1 80.5 Sales Fines 48,000 36,000 33.3 53,000 (9.4) Value (Rs mn) 179 291 (38.6) 177 1.2 Realisation (Rs/tonne) 3,729 8,094 (53.9) 3,336 11.8 Non-fines 168,000 345,000 (51.3) 295,000 (43.1) Value (Rs mn) 2,264 1,901 19.1 3,082 (26.6) Realisation (Rs/tonne) 13,474 5,511 144.5 10,448 29.0 Total Sales Volume 216,000 380,000 (43.2) 348,000 (37.9) Blended Realisation (Rs/tonne) 11,309 5,168 118.8 9,394 20.4 Sales mix (%) Fines 22.2 9.5 15.2 Non-Fines 77.8 90.8 84.8 2
Exhibit 3: Segmental Overview 4QFY17 4QFY16 % yoy 3QFY17 % qoq Revenue (Rs mn) Mining Products 2,465 1,984 24.2 3,269 (24.6) Manufactured Products 86 129 (33.1) 310 (72.2) Power 27 27 0.3 16 70 Less :-Intersegment 51 29 73.6 42 21.4 Net Revenue 2,527 2,110 19.8 3,553 (28.9) Results (Rs mn) Mining Products 1,019 (184) (653) 1,122 Manufactured Products 14 (35) - 46 (68.6) Power 19 19 1.6 7 156.8 Margins (%) Mining Products 41.4 (9.3) 34.3 Manufactured Products 16.8 (27.6) 14.9 Power 69.9 69.0 46.3 3
Profit & Loss Y/E Mar (Rs mn) FY16 FY17 FY18E FY19E Net sales 6,580 9,898 10,040 11,291 growth (%) (21.0) 50.4 1.4 12.5 Operating expenses (4,869) (6,944) (5,522) (6,165) EBITDA 1,711 2,955 4,518 5,126 growth (%) (56.3) 72.7 52.9 13.5 Depreciation 510 547 712 790 EBIT 1,201 2,408 3,806 4,336 Other income 3,144 2,211 2,657 3,029 Pre-tax profit 4,344 4,619 6,463 7,366 Tax 1,455 1,561 2,165 2,467 Effective tax rate (%) 33.5 33.8 33.5 33.5 Net profit 2,889 3,058 4,298 4,898 Adjusted net profit 2,889 3,058 4,298 4,898 growth (%) (34.0) 5.9 40.5 14.0 Shares o/s (mn nos) 168 133 133 133 Balance Sheet Y/E Mar (Rs mn) FY16 FY17E FY18E FY19E Net fixed assets 5,692 6,646 7,133 7,843 Investments 42 42 42 42 Other non-curr assets 1,628 1,631 1,748 1,875 Current assets Inventories 587 639 695 756 Sundry Debtors 1,345 1,452 1,568 1,694 Cash and cash equivalents 29,937 20,911 23,437 25,935 Loans and advances 796 836 877 921 Total assets 40,028 32,157 35,501 39,067 Shareholders' funds Share capital 1,680 1,332 1,332 1,332 Reserves & surplus 34,441 26,723 29,861 33,212 Curr Liab & prov Current liabilities 1,472 1,546 1,623 1,704 Provisions 2,435 2,557 2,685 2,819 Total liabilities Total equity & liabilities 40,028 32,157 35,501 39,067 4
Cash Flow Statement Y/E Mar (Rs mn) FY16 FY17E FY18E FY19E Pre-tax profit 4,344 4,619 6,463 7,366 Depreciation 510 547 712 790 Tax paid (1,455) (1,561) (2,165) (2,467) Chg in working capital (107) (6) (126) (141) Cash flow from operations (a) 3,292 3,599 4,884 5,546 Capital expenditure (1,490) (953) (488) (710) Cash flow from investing (b) 1,802 2,646 4,395 4,836 Equity raised/(repaid) - (8,633) - - Dividend (incl. tax) (197) 55 (156) (467) Others (918) (7,517) (7,517) Cash flow from financing (c) (197) (9,497) (7,673) (7,984) Net chg in cash (a+b+c) 4,898 (3,251) 1,607 2,398 Key Ratio Y/E Mar (Rs mn) FY16 FY17E FY18E FY19E Adj EPS (Rs) 17.2 23.0 32.3 36.8 Adj EPS growth (%) (34.0) 33.5 40.5 14.0 EBITDA margin (%) 26.0 29.9 45.0 45.4 Pre-tax margin (%) 66.0 46.7 64.4 65.2 ROE (%) 8.0 10.9 13.8 14.2 5
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