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 533047 IMFA IMFA IN 1658 45.15% Rs. 899.95/462 7257 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 (+91 22 3926 8172) 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. 228.43 crores as compared to Rs. 202.53 crores in Q3FY10 and was down by 24% from Rs. 300.32 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 40000 tons whereas in Q2FY11 it sold 52489 tons. The company reported an EBITDA of Rs. 71.66 crores in Q3FY11, an increase of 6.4% as compared to Rs. 67.33 crores in Q3FY10 and decreased by 33.3% from Rs. 107.4 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. 29.41 crores as against Rs. 32.33 crores for Q3FY10 and decreased by 48.6% from Rs. 57.24 crores in Q2FY11 due to non availability of MAT credit. The Company has reported an EPS of Rs. 11.17 in Q3FY11 as compared to Rs. 12.89 in Q3FY10 whereas the company has posted an EPS of Rs. 21.73 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. 71.2 and 6.7x FY12E EPS of Rs. 96.1. 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 2011. EBIDTAM (%) PAT PATM (%) EPS (Rs.) P/E(x) P/BV Year Net Sales Growth % EBIDTA FY09A 994.1 14.1% 467.8 47.06% 260.6 26.22% 99.0 6.5 4.4 FY10A 592.6 40.4% 142.3 24.01% 41.0 6.92% 15.6 41.1 15.2 FY11E 1046.3 76.6% 368.3 35.20% 187.7 17.94% 71.2 9.0 6.0 FY12E 1339.7 28.0% 456.2 34.05% 253.1 18.89% 96.1 6.7 5.0
Key Takeaways of Concall: IMFA has commenced the production of 40000 tons capacity in Q2FY11, though 30MW of additional power capacity will be operational by the end of march 2011. 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 2011. 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. 1100 1200/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 43063 tons in Q1FY11, 40567 tons in Q2FY11 and 44301 tons in Q3FY11. The average price realization was Rs. 57000 per ton in Q3FY11, Rs. 57000 per ton in Q2FY11 whereas, it was Rs. 62000 per ton in Q1FY11. The management expects average price realization for FY11E to be Rs. 57000 to 60000 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.
Source: Bloomberg & Nirmal Bang Research Source: Bloomberg & Nirmal Bang Research
IMFA Q3FY11 Particulars Q3FY11 Q3FY10 YoY(%) Q2FY11 QoQ(%) Gross Sales 228.43 202.53 12.8% 300.32 23.9% Less: Excise Duty 0.00 0.00 0.00 Net Sales 228.43 202.53 12.8% 300.32 23.9% Other Operating Income 7.17 7.72 9.09 Total Income 235.60 210.25 309.41 Raw Material Consumed 116.78 66.92 74.5% 97.55 19.7% Stock Adjustment 19.14 22.83 183.8% 42.61 144.9% Employee Expenses 17.50 13.99 25.1% 17.14 2.1% Other Expenses 48.80 39.18 24.6% 44.71 9.1% TOTAL EXPENDITURE 163.94 142.92 14.7% 202.01 18.8% EBITDA 71.66 67.33 6.4% 107.40 33.3% Interest 13.10 14.24 8.0% 9.75 34.4% Other Income 0.00 0.00 0.00 EBDT 58.56 53.09 10.3% 97.65 40.0% Depreciation 11.82 12.93 8.6% 10.11 16.9% PBT 46.74 40.16 16.4% 87.54 46.6% Tax 11.06 14.43 23.4% 27.54 59.8% Fringe Benefit Tax 0.00 0.00 0.00 Deferred Tax 6.27 0.19 2.76 127.2% MAT credit set off 0.00 6.41 Reported Profit After Tax 29.41 32.33 9.0% 57.24 48.6% Extra ordinary Items 0.00 0.00 0.00 Adjusted Profit After Extra ordinary item 29.41 32.33 24.6% 57.24 48.6% EPS (Unit Curr.) 11.17 12.89 21.73 Equity 26.34 25.08 26.34 PBIDTM(%) 31.4% 33.2% 35.8% PBDTM(%) 25.6% 26.2% 32.5% PATM(%) 12.9% 16.0% 19.1%
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 994.1 592.6 1046.3 1339.7 Share Capital 21.3 26.3 26.3 26.3 % change 14.1% -40.4% 76.6% 28.0% Reserves & Surplus 437.0 580.3 743.3 965.6 Operating Profit 440.4 112.6 338.3 426.2 Net Worth 458.3 606.6 769.7 991.9 % change in OP 60.5% -74.4% 200.5% 26.0% Minority Interest 0.07 22.97 22.97 22.97 Other Income 27.4 29.7 30.0 30.0 Total Loans 352.4 475.4 520.9 607.2 EBITDA 467.8 142.3 368.3 456.2 Total Liabilities 810.8 1105.0 1313.5 1622.1 Interest 79.5 44.4 48.7 37.3 Net Fixed Assets 449.6 755.5 917.9 1135.5 EBDT 388.3 97.9 319.6 418.9 Investments 92.9 72.4 72.4 72.4 Depreciation 37.9 40.4 51.5 57.4 Deferred Tax Assets 10.89 8.97 8.97 8.97 Extraordinary 0.0 0.0 0.0 0.0 Inventories 217.9 254.1 263.4 340.1 PBT 350.4 57.5 268.1 361.5 Sundry Debtors 33.7 20.5 34.9 44.7 Tax 89.7 16.5 80.4 108.5 Cash & Bank 7.1 47.6 46.1 67.2 PAT 260.6 41.0 187.7 253.1 Loans & Advances 299.3 230.6 236.2 295.3 Adj PAT 260.6 41.0 187.7 253.1 C A L&A 558.0 552.7 580.5 747.3 Shares o/s ( No. in Cr.) 2.6 2.6 2.6 2.6 CL & P 302.5 307.3 295.9 384.9 EPS 99.0 15.6 71.2 96.1 Working Capital 255.6 245.4 284.6 362.4 Adj EPS 99.0 15.6 71.2 96.1 Misc Exp 1.8 22.7 29.7 36.7 Cash EPS 113.3 30.9 90.8 117.9 Total Assets 810.8 1105.0 1313.6 1616.0 DPS (Rs.) 10.0 5.0 8.0 10.0 Quarterly (Rs. In Cr) Mar.10 Jun.10 Sep.10 Dec.10 Cash Flow (Rs. In Cr) FY09A FY10A FY11E FY12E Revenue 158.90 235.73 300.32 228.43 Operating ` EBITDA 45.66 110.74 107.40 71.66 Operating Income 440.4 112.6 338.3 426.2 Interest 6.76 17.15 9.75 13.10 Change in WC -47.0 50.7-40.7-56.7 EBDT 38.90 93.59 97.65 58.56 Other Adjustment -0.9 4.8 0.0 0.0 Dep 10.25 10.10 10.11 11.82 CF from Opeartion 392.5 168.0 297.6 369.5 Other Inc. 0.00 0.00 0.00 0.00 Investment Extraordinary 0.00 0.00 0.00 0.00 Capex -79.3-346.1-213.9-275.0 PBT 28.65 83.49 87.54 46.74 Other Investment -48.1 20.5 0.0 0.0 Tax 9.56 29.18 30.30 17.33 Total Investment -127.4-325.6-213.9-275.0 PAT 19.09 54.31 57.24 29.41 Financing EPS (Rs.) 7.25 20.62 21.73 11.17 Diviend Paid -24.9-15.4-24.6-30.8 Operational Ratio FY09A FY10A FY11E FY12E Share Capital 0.0 5.0 0.0 0.0 EBITDA margin (%) 47.1% 24.0% 35.2% 34.1% Premium / Reserve -0.1 140.6 0.0 0.0 Adj.PAT margin (%) 26.2% 6.9% 17.9% 18.9% Borrowing -179.3 123.0 45.6 86.3 Adj.PAT Growth (%) 148.9% -84.3% 357.7% 34.9% Other Income 27.4 29.7 30.0 30.0 Price Earnings (x) 6.5 41.1 9.0 6.7 Subsidy Rec 0.0 0.0 0.0 0.0 Book Value (Rs.) 173.3 221.7 280.9 362.7 Interest -79.5-44.4-48.7-37.3 ROE (%) 76.9% 7.9% 28.3% 29.9% Tax Paid -43.2-19.4-80.4-108.5 ROCE (%) 55.0% 10.8% 26.8% 27.8% Total Financing -300.3 198.1-85.3-67.3 Debt Equity Ratio 0.8 0.8 0.7 0.6 Price / Book Value (x) 3.7 2.9 2.3 1.8 Net Chg. in Cash -35.1 40.5-1.5 27.3 EV / Sales 2.1 3.6 2.1 1.7 Cash at beginning 42.1 7.1 47.6 46.1 EV / EBIDTA 4.4 15.2 6.0 5.0 Cash at end 7.0 47.6 46.1 73.3
NOTE Disclaimer This Document has been prepared by N.B.Research (Nirmal Bang Securities PVT LTD).The information, analysis and estimates contained herein are based on N.B.Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents N.B.Research opinion and is meant for general information only. N.B.Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. N.B.Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. N.B.Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. N.B.Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.