Scripscan:Indian Metals & Ferro Alloys Ltd
cmp:280
Code:533047
Story:Indian Metals and Ferro Alloys Ltd (IMFA) is India’s largest fully integrated producer of ferro chrome with 187 MVA installed furnace capacity capable of producing 275,000 MTPA. Post the commissioning of the coal mining operations the company is likely to see significant savings in the power cost which has increased stupendously in the current quarter to Rs.5.5 p.u. However this saving is likely to accrue only from FY13E.Faced by twin problems of dropping realisations and rising input costs, Indian Metals & Ferro Alloys (IMFA) has come out with disappointing set of numbers for Q2FY12. IMFA’s revenue declined by 4.8% YoY however on a QoQ basis there is a growth of 9.8% to Rs.2,859.7 mn. Its EBITDA dropped significantly by 84.5% YoY to Rs.152.4 mn led by substantial rise in input costs by 45% YoY. The EBITDA margin for the quarter stood at 5.33% vs 32.74% in the corresponding quarter of the previous year.The raw material cost increase was led by higher coal and met coke costs. Due to seasonal factors availability of coal was a problem which resulted in higher dependency on e-auction coal and imported coal. During the quarter the company relied on 90% e-auction coal and 10% imported coal resulting in higher blended coal cost. Met coke prices were rock steady at ~$500/tonne which is acting as a further deterrent to the company’s performance given the adverse rupee dollar movement. The company’s power cost has more than doubled to Rs.5.5 per unit on the back of rise in the thermal coal prices. The company reported a loss of Rs.86.9 mn vs. profit of Rs.572.4 mn in Q2FY11.Considering the current trend of rising raw material costs and falling realisations, we have downward revised our earnings estimates by 54.5% and 55.0% to Rs.22.3 and Rs.33.6 for FY12E and FY13E respectively. However we continue to maintain our BUY rating on the stock with a revised SOTP based target price of Rs.439 based on FY13E numbers. We have valued the power business at Rs.81 based on DCF methodology and metal business at Rs.358 based on 5x FY13E EV/EBITDA.
Source:Sushil finance
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