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Buy Adhunik Metaliks – ICICI Direct

September 3, 2007

ICICI Direct has recommended a BUY on Adhunik Metaliks with a price target of Rs 90 within 3 Months.

AML is implementing a capex programme that would change its business profile from a secondary steel manufacturer to an integrated steel player with linkages across the entire value chain from critical raw materials such as iron ore and coal to value added steel products. The company is executing an expansion plan that would almost double its capacity from 250,000 tpa to 440,000 tpa by 2008. The company is integrating backwards with captive ownership of critical raw materials, viz. iron ore and coal mines which would enable it to withstand pricing pressures and face competition better compared to its peers.

The company reported a top line of Rs 735.76 crore and bottom line of Rs 77.48. In Q1FY08, sales grew 21.86% y-o-y to Rs 208.12 crore, while bottom line grew 14.22% to Rs 17.75 crore. During the quarter under review, the company acquired Orissa Manganese & Minerals Pvt Ltd as a 100% subsidiary, which has mining rights with reserves of 15 million tonnes for manganese ore and 35 million tonnes for iron ore. The integration and acquisition of mines would drive the company’s top line at a CAGR of over 40.70% during FY06-09E to Rs 1,180.37 crore and bottom line at a CAGR of around 59.58% to Rs 137.00 crore.

At the current price of Rs 76, the stock is trading at 6x the FY09E EPS. The stock has the potential to touch Rs 90, an upside of 20%. Another research analyst, tracking this stock expects a price of Rs 95- Rs 105 on conservative basis.

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