One of our members S Paul recommends having a look at Maithan Alloys recommended by HDFC Securities recently, Oct 26 @178. Stock has moved to 192 CMP.
Thanks Paul. A quick look tells me the main triggers are the expanded capacities going to come on stream in FY12 (almost 3x). Competition analysis becomes a must for this player in ferro alloys with -IMFA, Rohit Ferro, Balasore Alloys, Navbharat Ferro and Ferro AlloysCompany, before forming a outlook. (debt positions, capacities, captive mines & power, etc.) available at 5x.
MAL is engaged in the production of manganese alloys. It mainly produces Ferro Silicon and Silica Manganese. The companyhas started to see an improvement in its overall business over the past few quarters and FY11 is expected to be a good yearfor MALâs business. This is mainly due to the increased demand of alloys in the country. The raw material prices have alsobeen stable while the finished goods prices have risen, thereby enabling the company to enjoy higher margins. The volumesare expected to continue growing in FY11 as it did in FY10.
The company has an overall capacity of 64 MVA (divided into 49 MVA in Kalyaneshwari Plant and 15 MVA in Meghalayaplant). It also has a captive power plant of 15 MW in the Meghalaya plant. This helps the company reduce the cost of power asthe production of alloys consumes a lot of power. With the increase in the overall capacity (as Meghalaya plant started only ayear ago), the companyâs topline is expected to grow rapidly in the coming years. Above that, MAL is also planning to install anew plant through its subsidiary in Vizag, Andhra Pradesh with a capacity of 72 MVA by FY12. The plant would be a 100%export oriented unit and will cater to the needs of the rising demand from foreign countries.
The company had faced problems in FY09 due to inventory and forex losses. This was not repeated in FY10. In FY10, MALhad also provided for a claim of arrears of power from Damodar Valley Corp amounting to Rs 12 crs (amount not yet paid âsubjudice). This may not be repeated in FY11 and hence could add to the profits of the company in FY11. The company hasalso focused on shifting its exports from Europe to Asian countries, as the economy is Asia is more stable and that could helpthe company stabilize its business over the long run.
With further capacities in the pipeline, captive power plant and subsidiaries set to begin their operations soon, the outlook forMAL looks quite buoyant. Also the fact that the industry outlook in which the company operates in being quite positive, thedemand for MALâs products could see further increase and hence add to the revenues and profits of the company goingahead.
As compared to some of its peers, MAL does not own mines (no great disadvantage for MAL), has no power plant for sale ofpower externally (merchant power rates are volatile) and little presence in ferro chrome. The key risk to MAL like any othercommodity company is competition and fluctuation in product and raw material prices.
We feel that the company could do well in the quarters to come and with the additional Vizag plant set to start in FY12, thecompany could soon start reporting stronger numbers in the future quarters. Investors could buy the stock at CMP and add ondeclines to Rs.150-156 band for sequential targets of Rs.210 (4xFY11E EPS) and Rs.236 (4.5xFY11E EPS) in the next 2-3quarters.