LTD Rs 81/*
**
**
RESULT UPTDATE: Company has reported Q4 results better than our estimates:
Quarter ended Year
Ended
* 30.6.08* 30.6.07 *
30.6.08* 30.6.07
Sales 37.80 18.82
115.51 72.93
PAT * 7.03* 1.60 *
18.53*
4.89
*EPS Rs 7.44 19.61*
**
*Manganese Ore prices have touched all-time high and continue to rise.
Company holds 25% stake in Manganese Ore JV which will prove big
money-spinner for Indsil. *
**
*Stock is trading at below 4XFY08 EPS. Scrip has potential to move up even
in bear market.*
**
*Rationale for Recommendation: With soaring prices of crude and other energy
(non-renewable) sources, there will be mad scramble for alternate sources of
energy. With higher oil and coal prices, power generation cost of thermal
power plants will become prohibitive. Whereas, raw material for hydel-power
plants is water and main cost of power generation is wages and maintenance.
In such scenario, Indsil appears an extremely attractive and safe investment
opportunity*
**
Last year, valuations of companies operating Power sector had skyrocketed
and touched mind-boggling valuations. Now in 2008, valuatinos of power
companies have come down but still, quoting at PE Ratio of 20-30. Agreed
that leaders in the industry deserve higher valuations but due to rising
energy costs, *everyone is looking for alternate energyand in future,
companies in alternate energy sector should command good valuations. In
such a scenario, Indsil* is going dirt cheap considering its excellent
performance. Main reason for this scrip languishing at very low valuations
is (1) Name of the company does not indicate that it is in Power sector as
well (2)Coimbatore based promoters are extremely low-profile.
Indsil has basically 2 divisions:
1.* Smelter* unit situated in Palakkad is engaged in the production of Low
carbon Silico manganese. It is consumed by stanless steel industry. The boom
in the ferro alloy prices was accompanied by a massive increase in price of
inputs. After the correction, manganese ore prices did not correct
proportionately and this led to severe losses in terms of operations across
the ferro alloy industry in India and worldwide.
Ferro alloy indusry has seen major upward rise, both in demand and price
realisation during 2006-07. Mnaganese alloy indusry in particular has seen a
major bull run in prices of its respective commodities starting with pure
manganese metal and stretching across the entire gamut of manganese alloy
products. Bull run has been mainly attributed to tightening supply from
China. This shortage of material in China had to be made up by India. Thus,
industry saw major upward correction and positive uptick has been sustained
even now.
2. *Power: *Company has 21 MW Hydel power plant in Idduki district which
witnesses 2nd highest rain fall in India. Now, power segment is earning
almost entire profits for the company as smelter division suffered from
high ore prices.
*Financial Performance:*
Year Ended
30.06.2007
Sales 72.93
Operating Profit 12.09
Interest 3.49
Depreciation 3.46
*PAT 4.90*
Dividend 15%
Production:
Ferro Alloys 12673 MT
Power 397 Lakh units
Equity 9.45 Cr
EPS(Rs) 5.18
During the year, smelter division had a fairly good year of operations.
PBDIT was Rs(1.57)crs as compared to Rs(6.58) crs in 05-06 due to better
realisation
Hydel power plant generated 39.67 milluion units as against 52.05 units in
05-06.*PBDIT recorded is 13.65 crs as against 17.46 crs in 05-06. *
**
*CURRENT PROSPECTS:*
* NINE MONTH ENDED*
31.3.08 31.3.07
Sales 77.70 54.11
PBDIT 18.01 8.98
PAT * 11.50* 3.33
*EPS(Rs)* * 12.17 3.52*
Company has reported exceptionally good results in 9 months of current year
aided by record power generation at the hydel power plant. Smelter division
too complemented hydro division by coming up with good numbers. Company has
bagged lucrative long term contracts for supplied of manganese and since
price realisation in these contracts is fixed, market volatility wont
significantly affect its financials. *IN 9 months, ITS PAT HAS GONE UP BY
245%.*
**
* *YEAR ENDED
* 30.6.2008E*
Sales 105.00
PAT 16.75
Equity 9.45
*EPS(Rs) 17.70*
**
*PE RATIO 4.24*
**
*FUTURE OUTLOOK:*
*1. *One consortium had rights to develop 20 MW Hyder power plant. Company
bought these rights from this consortium. However, implementation of same
delayed due to water dispute between Karnatak and T.N. Govts. It is not
certain when these plans will be implemented.
*2.At present, company is selling power to its smelter division @ Rs 3.50/
unit. Now, company is in talks with a State Electricity Board who is
willing to buy power from Indsil @ Rs 8/unit during peak hours 6pm to 10pm.
Company is confident of signing this deal. If it materializes, company will
supply nearly 24 million units of power @ Rs 8/unit which can add minimum 10
cr profits in 08-09*
**
*3. Mining Foray: Company has entered into a JV with Goodearth group who own
Manganese ore mines in Indonesia spread over massive 5000 acres with
potential of 3 mn tonnes reserves. Indsil holds 25% stake in this JV. Mining
operations are likely to commence in July 08. A price formula has been
worked for supplying manganese ore to Indsil*
*which will provide some cost benefits ( at present, manganese ore is in
short supply and prices have skyrocketed). Also, company will have assured
linkage for Ore. There are certain grades of Manganese where extra cost is
hardly USD 100/tonne but selling price is higher by USD 500/tonne. Now,
Indsil will be in a position to acquire such special grade Ore from
Indonesia which will enable it to produce higher value-addition Manganese
which, in turn, will enhance profitability of its smeleter division.*
**
*Once, mining operations increase, JV will also do merchant sale ( from
09-10 onwards) of manganese ore which can add huge value to Indsil
valuations*
**
*4.*Group has one unlisted company called Indsil Energy in Durgapur whose
production capacity is twice as much of listed Indsil. This unlisted entity
also has 12 MW power plant.Its topline is around 190 crs with decent
profits. Production capacity of this unlisted entity is being enhanced by
40-50%. *Indsil Energy is likely to be merged with Indsil Electro in next 1
year. Post-merger, listed entity will hold 50% stake in Indonesian mining
JV as this unlisted co also holds 25% stake in mining JV. This will
straightaway triple topline of Indsil Electro and a bigger company will have
much much higher valuations,*
**
5. Name of Indsil Electro will be suitably changed in 08-09 to signify its
nature of business (hydel power).Once, it is done, scrip will automatically
catch attention of all marketmen.
6.Now, smelter division of Indsil Electro is doing extremely well. Company
is able to pass on increasecost of production and in fact, its profit
margins have expanded due to extremely strong demand.
*YEAR ENDED 30.06.2009E*
**
*SALES 118.00*
**
*PAT 21.50*
**
*Equity 9.45*
**
*EPS Rs 22.70*
**
*PE RATIO 3.30*
**
*Above estimates are based upon existing rates of power being sold @
3.50/unit. Benefits of mining JV have not been included in above estimates*
**
*IF CO SIGNS AGREEMENT TO SELL 24 MILLION UNITS @ Rs 8/unit, then ITS PAT
CAN ZOOM TO NEARLY 30 CRS WHICH WILL GIVE EPS OF MORE THAN 30*
**
*09-10 SHOULD BE A GRAND YEAR FOR THE COMPANY AS DURING THIS PERIOD,
UNLISTED GROUP CO WILL DEFINITELY BE MERGED, BIG INCOME FROM MERCHANT SALE
OF MANGANESE ORE ETC AND ADDITIONAL HYDEL POWER PLANT (BAGGED FROM
CONSORTIUM) MAY ALSO BE IMPLEMENTED*
**
*Valuations: *
**
**
**
JP Hydro and Energy Deveopment are in hydro power whereas Indowind is in
windmills. These 3 companies have extremely high valuations(mainly driven
by operators as promoters had some gameplan to raise big funds). Adani Power
is likely to come out with IPO at Rs 150-175/ although power plants are yet
to be commissioned. Comparatively, Indsil is going dirt dirt cheap.
**
*Due to rising crude prices, entire world is looking for alternate sources
of energy. After initial investments, hydel power plants are most
economical to run with least operating expenses and with passage of time,
operating margins increase (due to lower depreciation, interest cost). In
such a situation, Indsil appears THE CHEAPEST SCRIP IN POWER SECTOR (that
too alternate energy). If scrip has modest P/E ..
No comments:
Post a Comment