| Adhunik plans to be a full-fledged speciality steel company, but its shares look overpriced.
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| Kolkata-based Adhunik Metaliks is entering the primary market to raise Rs 100 crore to part-finance the second phase of its expansion project.
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| The issue price is Rs 10, and the offer is open from March 13-17, in the price band between Rs 37 and Rs 42. It has put a price tag of 14 times its earnings in the last three quarters at the lower end and 16 times at the upper end.
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| The issue will dilute the promoter-holding by 25 per cent. The book-running lead managers to the issue are SBI Capital Markets and Karvy Investor Services.
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| The company is keen on emerging as an end-to-end manufacturer of special alloy steel "� mainly of auto-grade and engineering-grade "� and stainless steel.
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Adhunik's net profit for the first nine months ended December 31, 2005 was Rs 16.81 crore, which gives nine-month earnings of Rs 2.63 for each of the 6.4 core shares into which the company is divided, pre-issue.
| EXPANSION PLAN | | | FY04 | FY05 | % Change | 9mnths
Ending '05 | | Net Sales | 33.38 | 129.17 | 286.97 | 239.13 | | RM/Net Sales(Per Cent) | 35.02 | 51.37 | 16.35 | 25.34 | | Operating Profit (Rs) | 6.69 | 14.72 | 120.03 | 40.17 | | Operating Profit Margin(Per Cent) | 20.04 | 11.40 | -8.65 | 16.80 | | Net Profit | 4.10 | 7.09 | 72.93 | 16.81 | | Net Profit Margin (Per Cent) | 12.28 | 5.49 | -6.79 | 7.03 |
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| The valuation is on the higher side, as Kalyani Steels, for example, is priced at 13.5 times its earnings for the last three quarters, while Usha Martin carries a price of 16.2 times.
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| However, Adhunik claims to be different from its peers, as it is focused on a distinct, well-integrated model of doing business.
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| "Our plans are to set up an integrated steel plant with forward and backward linkages. We will finally be engaged in right from iron ore and coal mining to manufacturing a range of steel products, including auto-grade steel. We have planned to implement the Adhunik Metaliks project in three phases. While the first phase is already on-stream, the second phase expansion will go in for implementation shortly. We expect to complete the entire project by 2008-09," said Director Manoj Agarwal.
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| The current expansion has been planned on the management's expectation of a shortfall in the production of alloy steel in two years, the period taken by the company to bring its new capacity on-stream.
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| The company was incorporated in 2001 with the aim of manufacturing value-added steel products, having applications in automotive, engineering and household sectors. Its products include sponge iron, pig iron, special-grade high carbon steel billets and different grades of alloy-steel billets.
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| The company has manufacturing facilites for 2,50,000 tonne a year for carbon and alloy steel-billets at Rourkela and Sundergarh, Orissa.
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| Alloy and special steel have enhanced properties with the presence of elements such as manganese, silicon nickel and chromium. Applications of alloy steel in consumer durables and automobiles have been on the rise in the recent years.
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| Use of alloy steel in two-wheelers and four-wheelers has enabled automobile manufacturers to produce lighter and fuel-efficient vehicles.
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While India currently has total installed capacity of producing 2.8 million tonne of special and alloy steel a year, Adhunik alone produces 2,50,000 tonne a year of carbon and alloy steel.
| FINANCIAL | | | Net Sales
(Cr) | EPS | PE | | Kalyani Steels | 276.24 | 20.24 | 13.59 | | Usha Martin | 875.19 | 11.49 | 16.20 | | Adhunik Metaliks Ltd (37/42) | 239.13 | 2.63 |
14/16 | | Note:- All the figures are for nine months ending Dec 2005 |
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| "By 2014, worldwide there will be a shortage of around 160 million tonne a year. So, there is huge potential for exports to south-east Asia," Agarwal said.
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| Adhunik believes that the per capita consumption of steel is likely to rise to 80 kg in 2007-08. Agarwal said with huge demand for roads, railways, ports, wagons etc, and 8 per cent GDP expected, the expansion is justified.
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| To fill this supply gap, the company plans to invest Rs 437.36 crore to expand its capacity from 2,50,000 tonne to 4,40,000 tonne a year. Among the structures to be installed are a vacuum degassing plant, rolling mill, argon-oxygen degassing plant, sinter plant, oxygen plant and a private railway siding. Adhunik also intends to set up its own captive iron ore and coal mining, in line with its 'integrated approach'.
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| Once the expansion is complete, its manufacturing will start from raw material iron ore and coal to value-added finished speciality steel and alloy steel for automotive, forging and engineering applications.
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| Adhuniks' product mix will then comprise 65 per cent of carbon and alloy steel, and 35 per cent of stainless steel. The company also plans to export 30-40 per cent to countries such as the US and Germany as there is huge demand from Ford, GM etc.
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| In addition to the proposed sum of Rs 100 crore via the IPO, the company has already taken term loans of Rs 284.29 crore and also utilised internal accruals of Rs 53.07 crore. It has raised the loans at 8.5 per cent, and has to repay Rs 5 crore every year. |
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