13 October, 2008
Adhunik Metaliks
Current market price: Rs 50.50
Brokerage: Motilal Oswal Securities
Adhunik Metaliks’ steel-making capacity has increased from 2,50,000 tonne per annum (tpa) to 4,00,000 tpa on addition of induction furnaces. This will drive volume growth of 25 per cent over FY08-10E. New rolling mill of 220 kilo tpa will enable higher production of rolled products, which command higher realisation and better margins. The company will be able to enter new business of stainless steel, should the market conditions become favourable as it has already commissioned an argon oxygen degassing unit, which has capacity to produce 1,20,000 tpa.
Sinter plant with a capacity of 2,67,000 tpa has commenced production, while the coke oven plant of 1,00,000 tpa capacity is expected to commence production by December 2008. These additions will bring down specific consumption of high cost raw materials. Captive iron ore mines will get operational from December 2008, which will further result in savings of costs. Though there is pressure on steel prices, the pressure on alloy and special steel is not similar due to lesser volatility.
Falling coke prices will ease input cost pressures and partially offset pricing pressure. Conversion of debentures and promoter warrants will reduce debt by Rs 230 crore. Consolidated EPS is expected to increase at CAGR of 67 per cent over FY08-10E. The stock is trading at P/E of 4.6x FY09E and 2.4x FY10E earnings. Maintain Buy.
CMP as on 10 October, 2008
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