Bhoruka Aluminium Ltd

7 March 2013 CMP: Rs. 1.2 Industry: Aluminium BSE Group/Index: B/- Promoters Rajkumar Aggarwal Rajat Aggarwal Utsav Aggarwal Year of incorporation 1979 Corporate office No. 1, KRS Road, Metagalli, Mysore Karnataka - 570016 Company website http://www.bhorukaaluminium.com Caution: BAL is a sick company. BAL reported net loss of Rs.607 mn in FY12 resulting in 68% deterioration in its net worth over FY11. It has defaulted in repayment of loans and interest to banks. The loans are declared as a non-performing asset. Write to us at: equity.research@outlook.com Key Data (as on 7-Mar-13) BSE 506027 ISIN INE866G01013 Face Value 10.0 Mkt Cap (Rs. mn) 65.9 Current P/E negative Current P/BV 0.3 52 week low-high 0.88-3.45 30 day daily trading volume (nos) 108083 Equity capital (Rs. mn) 549.4 Net worth (Rs. mn) 267.2 Company business Bhoruka Aluminium Ltd (BAL) manufactures aluminium extrusions. BAL s three extrusion presses has the flexibility to extrude billets of the diameter ranging from 6 to 10 inches and an anodizing plant that ensures uniform coating of extrusions without colour variation. BAL also sells agricultural products. Dr. BL Amla is the non-executive chairman, RK Aggarwal (promoter) is the managing director and Rajat Aggarwal (promoter) is the executive director of the company. BAL is reporting losses in the past five quarters. Despite that during FY12, the company invested Rs.311.4 mn in its wholly owned foreign subsidiary, Bhoruka Aluminium FZE, and gave one share as bonus against one share held to its shareholders. In December 2011, the company defaulted on its loans and interest from banks which were secured against a first charge on all movable and immovable assets of the company and are guaranteed is managing director. In March 2013, the company announced the sale of its aluminium extrusion business. Peer group analysis FY12, Rs in million Bhoruka Aluminium Sudal Industries Maan Aluminium Century Extrusions Total income 1,006.9 1,143.5 1,194.0 1,982.2 EBIDTA (393.9) 85.2 34.1 143.4 EBIDTA margin negative 7.5% 2.9% 7.2% PBT (607.3) 24.6 5.9 27.0 PAT (607.3) 17.8 4.0 32.0* PAT margin negative 1.6% 0.3% 1.6% Cash accruals (546.9) 34.3 18.9 73.3 EPS negative 3.4 1.2 0.4 Book value/share 4.9 39.6 78.1 4.5 Debt/EBIDTA negative 1.7 2.4 2.5 Debt/Equity 2.8 0.6 0.3 1.0 ROANW negative 19.5% 1.5% 8.9% ROACE negative 7.7% 5.5% 14.3% P/E negative 6.8 28.1 5.8 P/BV 0.6 0.6 0.4 0.5 Shares price as at financial year end are used for calculating price based ratios Source: Moneycontrol, Company BAL s financial performance for FY12 has been significantly weak. It reported a net loss of Rs.607.3 mn while all its peers reported net profit. The share price of 31 March 2012 discounts its book value of Rs.4.9 per share by 0.6 times. It is trading at an expensive valuation. In March 2013, it proposed to sell its core operation of manufacturing aluminium extrusion (subject to shareholder approval) which contributed over 99% of its revenue in the past two years. Page 1 of 5

Price Performance (vs BSE 500) Bhoruka Aluminium Ltd 7.78% 14.91% 3 YR 5 YR -92.73% -95.61% BSE 500 Bhoruka Aluminium Above 1% public shareholders No Name of the Shareholder Total Shares held (in mn) Shares as % of Total No. of Shares 1 Kakti Trading & Commercials Pvt Ltd 2.2 4.0 2 Transal Enterprises Pvt Ltd 1.7 3.1 3 Sukhy Commercial & Trading Pvt Ltd 1.1 2.0 Total 5.0 9.1 Change in Shareholding Pattern (%) Year Promoter DII FII Others Shareholding Pattern Dec-12 33.8 0.0 0.0 66.2 Sep-12 33.8 3.9 3.9 58.4 Jun-12 33.8 5.4 5.4 55.5 Mar-12 33.8 4.6 4.6 57.1 Sep-11 33.8 0.5 2.7 63.0 Sep-10 22.0 1.9 0.0 76.1 Sep-09 58.5 3.4 0.0 38.1 Sep-08 58.5 3.4 0.0 38.1 Source: BSE Source: BSE 66% 34% Promoter Others Page 2 of 5

Impact of increase in the prices of raw materials Erosion of 50% net worth during the year Aluminium extrusions industry is highly fragmented Demand for aluminium extrusion is dominated by architectural segment Capacity to produce 25,000 MT of aluminium extrusions Key concerns The increase in the prices of key inputs including aluminium billets/ingots and aluminium scrap has impacted the operating profit of the company in FY12. The company has proposed to sell its core business of manufacturing aluminium extrusions (after seeking shareholder approval). If approved by the shareholders, the company s sales will be impacted by around 99%. The net worth of the company has eroded by 68% from the previous year. The company is a sick company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985. Industry overview The domestic aluminium extrusions industry is highly fragmented with over 100 manufacturers. The secondary manufacturers source aluminium ingots/billets from the primary producers and use internally generated scrap to manufacture extrusions. Around 16% of total aluminium ingots produced is processed into extrusions. These are in different types like channels, angles, frames, tubes, trims and pipes and are used by industries including architecture, electrical, automobile, consumer durables, etc. The demand for these products was ~370,000 MT in FY11. The architectural segment (which uses these products for interior and exterior applications in household and commercial purposes) accounts for 55% consumption of extrusions and the balance is contributed by automobile, electrical, consumer durables, transportation and other industrial applications. The growth in demand for extrusion is due to its light weight and lower price. Company fundamentals BAL can manufacture 25,000 MT of aluminium extrusions per year. Its facilities are also equipped with powder coating and anodizing unit. Powder coating and anodizing unit adds value to the mill finished products. BAL derives 99% of its revenue from sale of extrusions and the balance 1% from sale of agricultural products and job charges. Proposed slump sale of aluminium extrusion business Change in financial year end BAL reported a net loss of Rs.607.3 mn (net profit of Rs.14.3 mn in FY11) On 1 March 2013, the company announced a slump sale of its aluminium extrusion business to KK Holding Asia Pte Ltd, Singapore. The sale is subject to shareholders and creditors approval. The details of the sale are yet to be announced. If approved by the lenders and shareholders, the company will cease to be aluminium extrusion manufacturer. Aluminium extrusion manufacturing contributed 99% of its revenue in the past two years. The sale of business is on account of significant accumulated losses in the company s books. For FY12 the company reported net loss of Rs.607.3 mn and the company s net worth declined by 68% over FY11. Key financial indicators The company changed its financial year end from September to March. As a result the financial year end changed from 30 September 2012 to 31 March 2013 (18 months period). Its annual general meeting was delayed by two months. As the financial year ended on 30 September 2012, the company had to arrange an annual general meeting before 31 December 2012. In FY12, the total income of the company decreased by 33.3% to Rs.1,006 mn. The company's EBIDTA turned negative this year, falling from a profit of Rs.143 mn in FY11 to a loss Rs.393.9 mn on account of increase in input cost. PBT turned negative this year, falling from a profit of Rs.14.8 mn in FY11 to a loss Rs.607.5mn. Interest expenses doubled from Rs.94.4 mn in FY11 to Rs.166.5 Page 3 of 5

mn in FY12. PAT turned negative this year, falling from a profit of Rs.14.3 mn in FY11 to a loss Rs.607.3mn in FY12. Exceptional loss of Rs.2981 mn Auditor qualifications Default on interest on loans from banks Issuance of warrants at a significant premium to share price Increase in paid up share capital The net loss was also impacted by an exceptional item (loss) of Rs.2,981 mn. This comprises correction of errors in the earlier years in valuation of inventories of Rs.132 mn and write-off of old outstanding receivables/payables of Rs.165 mn. The financials for the year are qualified by the auditors, RS Agarwala & Co. According to the auditors the company has not made provisions on interest on secured loans (Rs.120 mn), interest on unsecured loan (Rs.1.7 mn), interest on LC credit on material purchased Rs.0.8 mn and interest on credit on materials (Rs.0.9 mn). The company has defaulted on loans of Rs.922 mn from banks. These loans are secured against first charge on all movable and immovable assets of the company and are guaranteed by the managing director of the company. On 14 December 2010, the company issued 1.7 mn warrants to its promoters at Rs.45 each (including a premium of Rs.35 per share). Of these, 0.43 mn warrants were converted into equity shares in December 2010 and the balance 1.3 mn warrants were converted in August 2011 (year under review). The issuance of warrants convertible into equity shares at Rs.45 per share was at a significant premium to the then existing share price of the company (~Rs.15 per share on 13 December 2010). Pursuant to the conversion of warrants and issuance of bonus shares to its shareholders during the year, the paid up share capital of the company increased from Rs.262 mn (26.2 mn equity shares of Rs.10 each) to Rs.549 mn (54.9 equity shares of Rs. 10 each). Quarterly results Particulars (Rs in mn) Oct 12 to Dec 12 Oct 11 to Dec 11 % Change 1 Jul 12 to Sep 12 % Change 2 Total income 126.2 215.6-41.5% 141.4-10.7% Total expenditure (excl. depreciation) 158 362-56.4% 184.6-14.4% EBIDTA -31.8-146.4 - -43.2-26.4% PBT -43.8-209.1 - -18.5 - PAT -43.8-209.1 - -18.5 - EPS -0.8-3.81 - -0.34-1 compared to corresponding quarter in the previous year 2 sequential comparison Earnings per share Book value per share 5.0 0.0-5.0-10.0-15.0 1.0 0.6-11.1 40.0 30.0 20.0 10.0-31.2 21.0 4.9 Page 4 of 5

Profitability ratios Bhoruka Aluminium Ltd Leverage ratios 4.9% 16.8% 1.8% 7.6% -15.2% 3.69 3.99 3.5 0.7 2.9 RONW -227.3% ROACE Debt/Equity Debt/EBIDTA Financials P&L (Rs. mn) Balance Sheet (Rs. mn) Total income 1,324.8 1,509.0 1,006.9 Share Capital 75.4 261.8 549.4 EBIDTA 150.0 143.0 (393.9) Reserves & Surplus (incl. revaluation reserves) 82.5 554.9 (282.2) EBITDA Margin% 11.3% 9.5% negative Net worth 157.9 816.7 267.2 Depreciation 24.2 35.7 60.4 Borrowings 552.9 570.3 762.4 EBIT 125.8 107.3 (454.3) Current liabilities and provisions 624.7 493.0 534.5 Interest 115.0 92.4 166.5 Total liabilities 1,335.5 1,880.0 1,564.1 PBT(post extraordinary items) 10.4 14.8 (607.5) Net fixed assets 562.9 627.3 515.3 Tax 2.9 0.5 - Loans and advances (Long term and short term) 21.5 32.3 342.8 PAT (excluding minority interest) 7.8 14.3 (607.3) Investment 11.0 122.1 433.4 PAT Margin % 0.6% 0.9% negative Current assets 697.9 1,122.9 272.5 Dividend (including dividend tax) 0 0 0 Other non-current assets 42.2 (24.6) 0.1 Total assets 1,335.5 1,880.0 1,564.1 Valuation ratios P/E 4.83 2.44 negative P/BV 0.24 0.04 0.6 Cash Flow (Rs.mn) PBT 10.6 14.9 (620.7) CF from Operations 87.8 85.7 (207.4) CF from Investment (52.0) (208.6) (290.2) CF from Financing (31.6) 474.4 108.8 Inc/(dec) in Cash 4.2 351.5 (388.9) Closing Balance 41.0 392.5 3.7 Disclaimer The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Our company shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation which may affect their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. Page 5 of 5