Ankit Metal & Power Ltd BSE Scrip Code: 532870 Steel- Sponge Iron September 17, 2012 Business Summary Ankit Metal & Power Limited (AMPL), a Kolkata-based company, promoted by Mr Suresh Kumar Patni, is engaged in manufacturing of sponge iron, ingots, billets, TMT bars and ferro alloys at Bankura in West Bengal. Besides manufacturing, the company is also actively involved in trading of steel items and other products like ferro alloys which accounted for about 28% of net sales in FY12. AMPL was initially under the aegis of Impex Group which is a decadeold business house with established presence mainly in West Bengal. The Impex Group was set up by Mr Vimal Kumar Patni (eldest of the six Patni brothers and elder brother of Mr Suresh Kumar Patni). While some of the companies of the group were under the control of Mr Suresh Kumar Patni, others were controlled either by Mr Vimal Kumar Patni or other brothers. Now the Suresh Kumar Patni faction has formed a new group called SKP Group, comprising companies like Rohit Ferro Tech Limited, Impex Metal & Ferro Alloys, Impex Ferro Tech Limited. AMPL is currently trading at 2 times FY12 EPS and 0.4 times adjusted book value. Board of directors Person Role Suresh Kr. Patni NED, Chairman Ankit Patni MD Sanjay Kr. Singh WTD Kailash Chand Jain NED, Independent Vijay Chand Jain NED, Independent Jatin Nath Rudra NED, Independent Source: AR and CARE Research Note: MD: Managing Director, WTD: Whole-time Director ED: Executive Director, NED: Non Executive Director 1 Initiative of the BSE Investors Protection Fund
Background The company was incorporated on August 7, 2002 as Ankit Steel Works Private Limited and was subsequently renamed as Ankit Metal & Power Private Limited on July 8, 2004. Mr. Suresh Kumar Patni has promoted the company. Pursuant to change in the corporate status of the company from private to public, the name of the company was further changed to Ankit Metal & Power Limited with effect from August 31, 2004. Mr. S.K. Patni, aged about 51 years, is a graduate having wide experience of more than two decades in iron and steel related industry. He is well supported by his son, Mr. Ankit Patni (MD). Mr. Ankit Patni has been Director with the company since 2003. Although the promoters have rich business experience, AMPL has had a short track record having commenced operation only in the year 2005. However, in short span of time, it has established its presence in the Eastern India market. Business overview AMPL has an integrated steel manufacturing facility, having presence across the value chain encompassing sponge iron, billets, ferro alloys and value-added end-products like TMT bars. This apart, the company is also setting up a pellet plant which will act as a backward integration for the company. Furthermore, the company is also having power plants to cater to its entire captive requirement. AMPL derived 28% of net sales in FY12 from trading activities. Strengths and growth drivers AMPL s core strength lies in manufacturing of sponge iron, billets, ferro alloys and TMT bars. It has had a steady growth in revenue over the years, and net sales in FY12, witnessed a robust y-o-y increase of about 35% mainly on the back of improvement in realisation of all products coupled with increased sales quantity of sponge iron. Capacity expansion in sponge iron and new capacities of pellets and wire rod would further lead to growth in sales volumes. Risk and concerns Due to low entry barrier, AMPL is facing stiff competition from the unorganised sector. AMPL does not have captive mines for basic raw materials like coal and iron ore and has to procure the same from open market including through e-auction conducted by Coal India Ltd. The company has also entered into an agreement with Eastern Coalfields Limited for its coal requirement (annual contracted supply of 0.18 million tonnes); however, price remains unfixed. Thus, the company is not insulated from price volatility of input prices. Future strategy and expansion plans The company is setting up a 0.6 mtpa Iron Ore Pellet plant, 30 TPD DRI Kiln, RM Pre-heater, 15 MT AOD Converter, Railway siding and 80,000 TPA Wire rod mill at its existing site. The project is expected to be completely operational from March 2013. The latent demand for steel items in the market and AMPL s mission to become an integrated steel player of substantial size in the domestic steel industry prompted it to undertake the aforesaid project. Industry outlook The iron & steel industry is highly cyclical in nature and its fortune is dependent on demand from automobile and infrastructure sectors. The demand outlook for the domestic steel industry remains subdued owing to slowdown in the economic activities in infrastructure and auto sector, the primary consumers of steel in India. The industry today is also facing unanticipated problem of iron ore scarcity due to mining ban in Karnataka region, investigation by Shah Commission and non-issuance of D-form in Orissa. This has not only affected the availability of iron ore, but also led to spiralling prices. The economic slowdown is also expected to impede asset growth in sectors like infrastructure, automobile, real estate and, thus, cause moderation in demand of steel in the immediate term. Increasing costs of iron ore and coal and slower demand is expected to cumulatively affect the earnings potential and profitability margins of steel & steel-related companies. 2 Initiative of the BSE Investors Protection Fund
Peer comparison Year ended March 31, 2012 Income statement (Rs. crore) AMPL MSP Steel Tata Sponge Gallantt Ispat Total income 917.3 718.1 654.7 298.9 Net sales 925.8 694.9 633.7 269.1 EBITDA 88.0 116.2 114.8 22.9 Ordinary PAT 33.2 26.1 75.7 5.9 Adjusted PAT 33.2 26.1 75.7 5.9 Per share data (Rs.) Adjusted BVPS 47.0 66.8 369.1 67.5 Diluted EPS* 3.5 4.4 49.1 2.2 Growth (Y-o-Y) (%) Growth in Total income 27.5 30.9 (6.3) 20.3 Growth in Net sales 34.5 45.7 (6.2) 17.9 Growth in EBITDA 43.0 53.0 (83.0) NM Growth in Adjusted PAT 37.1 (47.4) (25.3) 86.1 Growth in EPS* (52.7) (49.0) (25.3) 86.4 Profitability ratio (%) EBITDA margin 9.5 16.7 18.1 8.5 Adjusted PAT margin 3.6 3.6 11.6 2.0 Valuation ratios (Times) Price/EPS (P/E) 4.0 6.4 6.3 20.4 Price/Book value (P/BV) 0.3 0.4 0.8 0.7 Enterprise value (EV)/EBITDA 5.6 8.5 4.1 10.9 Note: MSP Steel: MSP Steel & Power Ltd., Tata Sponge: Tata Sponge Iron Ltd., Gallantt Ispat: Gallantt Ispat Ltd. Quarterly financials Quarter ended June 30, 2012 Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income 279.6 252.8 250.1 238.4 185.8 Net sales 279.5 252.3 249.8 238.1 185.5 EBITDA 116.3 105.7 76.4 74.5 51.5 Ordinary PAT 12.9 12.5 5.7 7.5 7.6 Adjusted PAT 12.9 12.5 5.7 7.5 7.6 Growth (Q-o-Q) (%) Growth in net sales 10.8 1.0 4.9 28.4 Profitability ratio (%) EBITDA margin 41.6 41.9 30.6 31.3 27.7 Adjusted PAT margin 4.6 5.0 2.3 3.1 4.1 3 Initiative of the BSE Investors Protection Fund
Financial analysis Net sales in FY12 witnessed a robust y-o-y increase of about 35%. EBIDTA and PAT margins also increased, although marginally. FY12, raw materials cost as a percentage of net sales was at around 80%. The company reported EBITDA margins and adjusted PAT margins of 9.5% and 3.6%, respectively in FY12. The total debt as on March 31, 2012 was at Rs.367.6 crore compared to an adjusted networth of Rs.448 crore. AMPL s financial position is satisfactory with the overall gearing at 1.34 times as on March 31, 2012. The long-term debt-equity ratio is also comfortable at 0.85 as on March 31, 2012. Operating cash flows for the company has been positive in each of the last four years (i.e. period considered for analysis). Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. crore) Total income 295.1 505.0 647.3 719.3 917.3 Net sales 281.5 492.0 628.9 688.4 925.8 EBITDA 44.4 24.7 36.6 61.5 88.0 Depreciation and amortisation 4.4 10.4 10.9 12.4 14.2 EBIT 40.0 14.2 25.8 49.1 73.7 Interest 8.0 19.6 14.9 22.0 35.1 PBT 34.5 8.8 18.3 28.0 39.9 Ordinary PAT 22.8 6.4 20.9 24.3 33.2 Adjusted PAT 22.8 6.4 20.9 24.3 33.2 Balance sheet (Rs. crore) Adjusted networth 113.4 119.8 140.7 275.7 448.0 Total debt 115.3 152.1 178.6 162.1 367.6 Cash and bank 4.3 7.3 10.8 16.2 23.5 Investments - 0.0 0.0 0.0 0.1 Net fixed assets (incl. CWIP) 162.1 176.9 185.2 318.8 711.1 Net current assets (excl. cash, cash equivalents) 71.1 98.8 131.9 61.5 96.2 Per share data (Rs.) Adjusted BVPS 34.5 36.4 42.8 83.8 47.0 Diluted EPS 6.9 2.0 6.4 7.4 3.5 DPS 0.5 - - - - Growth (Y-o-Y) (%) Growth in total income 71.1 28.2 11.1 27.5 Growth in net sales 74.8 27.8 9.5 34.5 Growth in EBITDA (44.5) 48.5 67.9 43.0 Growth in adjusted PAT (71.8) 224.7 16.1 37.1 Growth in EPS (71.4) 224.0 16.2 (52.7) Key financial ratio EBITDA margin (%) 15.8 5.0 5.8 8.9 9.5 Adjusted PAT margin (%) 7.7 1.3 3.2 3.4 3.6 RoCE (%) 4.5 9.3 11.4 10.1 RoE (%) 5.5 16.0 11.6 9.2 Gross debt - equity (times) 1.0 1.3 1.3 0.6 0.8 Net debt - equity (times) 1.0 1.2 1.2 0.5 0.8 Interest coverage (times) 5.0 0.7 1.7 2.2 2.1 Current ratio (times) 2.1 2.1 2.4 1.3 1.3 Inventory days 55.1 52.5 72.1 79.6 Receivable days 45.0 52.5 55.5 57.4 Note: Financial Year (FY) refers to period from April, 1 to March, 31 NM: Non Meaningful 4 Initiative of the BSE Investors Protection Fund
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