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Adhunik Metaliks Ltd (AML) manufactures a wide range of steel such as carbon alloy, ball bearing steel, forging quality and engineering grade steel etc. The company is also operational into merchant mining and power through its subsidiaries
Key Investment Highlights
• Structural improvement in margins owing to captive mining
• Expansion of capacities to drive topline in steel business
• Ramping up of merchant mining business
• Venturing into power generation
Valuation & Recommendation:
At CMP of Rs 104.4, the stock is trading at 5.2x and 3.5x its estimated earnings for FY2011E & FY2012E. Timely addition in sponge iron capacity and ramping of mining operations at captive as well as merchant sites will lead to revenue growth of 22.2% CAGR over FY10-12 and will boost operating margins to 37.5% on a structural basis. We recommend a BUY on the stock with a Price Objective (PO) of Rs. 204.5 (6.8x of FY12 Earnings) representing a potential upside of ~96% over a period of 15-18 months.
Adhunik Metaliks Ltd Research Report is available for download