Adhunik Metalinks ...cmp Rs 116.30.....a case of Valuation....

Friends,
Many times we look at the valuation.Whether a stock is over valued or undervalued or fairly valued.
I remember I have written in length about "VALUATION"....if someone can write it in "search "tab here on right of my blog one can find that writeup.....
I never am able to understand how analyst decides on Valuation of certain stocks......Valuation is constantly changing parametres and one need to be in constant touch of any development taking place in that perticular stock....just one big order or some collobaration and valuation can come up or go down drastically......

Well, Adhunil Metalinks is the same case of Valuation.I just went through a report of Adhunik on DNA Money site and ended up on this report which I am pasting here for my readers......

Adhunik to benefit from mining, power foray



Published: Monday, Sep 20, 2010, 3:40 IST


By Nitin P Shrivastava
Place: Mumbai
Agency: DNA
As the domestic economy continues to remain on firm footing, infrastructure spending and consumption would continue to spur the demand for steel products.

Adhunik Metaliks, a mid-size steel player is set to reap the benefits of its backward integration plans, ramp up in merchant mining volumes and its recent foray into power segment.


Business
Adhunik Metaliks manufactures alloy steel, special steel and stainless steel, catering to automobile, engineering, power, oil & gas and construction sectors. The company has recently diversified itself into the mining and power segments to generate additional revenues.

Steel segment:
The company derives about 84% of revenues from this segment. It focuses on value added products from its single manufacturing plant, which has a total installed capacity to produce 0.45 mtpa of steel. Adhunik has an installed capacity to produce around 0.21 mtpa of pig iron and 0.3 mtpa of sponge iron. The company is looking to expand its sponge iron making capacity from 0.3 mtpa to 0.4 mtpa in next two years.
Adhunik’s focus to up the share of alloy revenues to total sales from 54% to 70% in the coming years would result in better realisations, increasing revenues.
The company sources 40% of its iron ore requirements from the merchant mines of its subsidiary, Orissa Manganese & Minerals (OMML). Adhunik has been allocated captive iron ore mines with reserves of 25 mt, which are expected to be partly operational in next 3-4 months. These would help company to meet close to 60% of total ore requirements in FY12. Also, the company has been allocated captive coal mines which are expected to get operational by FY13.Adhunik is able to meet 40% of the power requirement in-house, through its captive plantof 34 mw currently, which is being ramped up to generate 80 mw in the next two years.

Mining segment:
This high-margin segment contributed 16% of consolidated revenues in FY10, which is expected to grow substantially as mining volumes go up. Adhunik, through OMML, possesses iron ore and manganese ore mines with reserves of 97 mt and 53 mt, respectively, both of which are expected to last over 30 years. The company, which mined 1.15 mt of iron ore and 0.14 mt of manganese ore last year, plans to enhance production gradually over next 1-2 years resulting in higher sales.
Furthermore, the company plans to set up 1.2 mtpa pelletisation plant (expected by Q4FY12), an iron-ore beneficiation plant 0.05mtpa ferro alloys plant along with 30 mw captive power plant, to convert low-grade materials into pellets which would provide better realizations.

Power segment:
The company is also venturing into the merchant power business through its subsidiary Adhunik Power and Natural Resources Ltd (APNRL), which is planning to set up a 1080 mw thermal power plant, to be commissioned in three phases.The company has already achieved financial closure of the first two phases of 270 mw each to be commissioned by April 2012. APNRL has signed a power purchase agreement with Tata Power for selling 100 mw.


Investment rationale:
Adhunik’s backward and forward integration efforts would result in huge benefits for the company in 2-3 years. Through forward integration, the company is looking to increase sales of value-added products ands this is likely to result in improved realisations and higher revenues.
The firm’s efforts to ramp up the capacities of finished value-added steel products from 0.45 mtpa currently to 1.2 mtpa by FY15, on back of improving demand from automobiles and construction sector will help the company to garner higher volumes and sales.
Captive raw material sourcing through its iron ore and coal mines is likely to ensure fuel security and reduce costs, aiding net profit margins. Rise in production volumes in its mining business and improved realisations from planned investments would further boost revenues and margins. The management expects the power business to contribute 20% to company’s consolidated revenues from FY13 onwards.


Concerns
Any slowdown in the auto and construction sectors may impact volumes and a fall in prices of ore and steel may also lead to lower revenues. Adhunik also faces execution risks in adding additional capacities both in steel and power segments. Any delays in its captive mines getting operational due to environmental issues or otherwise could also lead to delay in accrual of benefits and thereby impacting the profits.

Valuations


Driven by higher volumes in its steel and merchant mining businesses, Adhunik’s revenues are expected to grow at a compounded annual growth rate (CAGR) of 24% over FY10-FY12. Net profit is likely to grow at a CAGR of 47% on benefits out of backward integration and higher margins in the mining segment. At a current market price of Rs116.30, the stock trades at P/E ratio of 6.35 times expected FY11 earnings and 4.87 times FY12 expected earnings respectively. The stock can be looked at current levels from long term perspective.


My Analysis :
Well, what catch my eys in this report are Mining segments and Power segments.That is the catch here.
Now eps of Adhunik Met is 4.80 for Mar 2010 and price is 116 means discounting the last year eps at 24.....now if someone just look at the p/e and see then one will only come to the conclusion that at 24 p/e Adhunik is overvalued....but when one goes in deeper, and try to take account of 1080 MW thermal power plant and that the Coal used for the power plant they already have acquired through their subsidiary Orissa Mangenese and Mineral then it looks like, the valuation will becomes cheap when the plant gets operational in by Apr 2012.
The Iron Ore mines will also add to the bottomline of Steel Plant as they have already have Iorn Ore mines which will be good for them for next 30 yrs.....Excellent!
Well, I was not tracking this Co so I was not able to get this annoucement in time...otherwise we would have been early bird in this counter...maybe around 30-35 range when it was in Apr 2009...but after that the stock has been in constant upmove .....making a very good base at price 95 and 100.....
Well, friends I leave it to you to decide whether one should go with Adhunik or wait for some downside....that maybe of 10-15%....not more.....but 97 mt and 57 mt iorn ore and Coal mines are big quantity.....
Those Co having Iron Ore Mines and Coal Mines are going to be benifitted in big way.....as they will not have to depend on that from others.......
But surely, market is discounting the mines of iron ore and Coal ....for Adhunik and giving thumbs up on valuation ......
Readers are invited to write some other stocks which have already have got Mines rights through its sub or directly......