Adhunik Metaliks Ltd. (AML) is the Flagship Company of "ADHUNIK

GROUP" of industries and represents on integrated Steel Plant located at

Rourkela, Orissa engaged in the production of value Added Steel, Alloy

Steel and Stainless Steel products catering to the automobile, construction

engineering and household industry. Adhunik Metaliks is in the business of

manufacturing sponge iron, special grade high carbon and low carbon

steel billets along with different grades of alloy steel billets.

Q4 FY09 Standalone RESULT ANALYSIS:

Adhunik Metaliks Ltd(AML) reported its Q4 FY09 results way below our

expectations due to weak product realizations and inventory write?down:

?? Net Sales for Q4 FY09 went down by 26.3% at Rs. 229.90 crores as

compared to Rs. 311.92 crores in Q4 FY08 and was almost flat at

Rs. 229.57 crores in Q3 FY09.

?? EBITDA decreased by 29.2% to Rs. 35.57 crores in Q4 FY09

compared to Rs. 50.27 crores in Q4 FY08 and increased by 62.6%

from Rs. 21.87 crores in Q3 FY09.

?? Net Profit for Q4 FY09 went down by 95.2% to Rs. 1.04 crores as

compared to Rs. 21.90 crores in Q4FY08 and increased from a

negative of Rs. 18.06 crores in Q3 FY09.

?? The Company reported EBITDA margin of 15.5% in Q4 FY09, lower

by 60 basis points as compared to 16.10% in the Q4 FY08 and up

by 600 bps as compared to 9.5% in Q3 FY09. The fall in the

EBIDTA was because of the huge correction in Steel prices,

inventory write?downs and mark to market loss due to currency

fluctuation.

?? There was a decrease in total expenditure by 24.5% to Rs. 199.57

crores in Q4 FY09 as compared to Rs. 264.22 crores in Q4

FY08.The fall in total expenditure was attributed to the fall in the

raw material costs as the company's Captive iron ore and coal

mines which are the major raw?material for them, became fully

operational in the current quarter.

?? Adhunik reported a PAT margin of 0.5% in Q4 FY09, as compared to 7.0% in

Q4 FY08 and negative 7.9% in Q3 FY09 due to sudden jump in interest and

depreciation cost.

?? The Company has reported an EPS of Rs. 0.11 in Q4 FY09.

FY09 Consolidated RESULT ANALYSIS

?? The Net sales increased by 22.8% to Rs. 1270.25 crores in FY09 from Rs.

1034.51 crores in FY08.

?? The EBIDTA increased by 29.6% to Rs. 233.18 crores in FY09 as against Rs.

179.86 crores in FY08.

?? During FY09, the Net Profit was down by 43.1% to Rs. 46.69 crores from Rs.

82.01 crores due to foreign exchange loss to the tune of Rs. 31.20 crores.

?? The EBIDTA margin for FY09 stood at 18.4% as against 17.4% in FY08, an

increase of 100 basis point.

?? The PAT margin also declined in FY09 to 3.7% in FY09 as against 7.9% in

FY08. The main reason for fall in PAT margin was sudden jump in interest

and depreciation cost.

?? The Company has reported an EPS of Rs. 5.12 in FY09 and Rs. 8.99 in FY08.

ADHUNIK METALIKS had been allotted iron?ore mine by Orissa

Government

Adhunik has added one more feather in its cap by being one of the nine companies

which has been granted iron ore lease by the Government of Orissa. The mine

allotted to Adhunik Metaliks is of 25 MT reserves which is expected to be

commissioned by September 09'. We believe that once the mine becomes

operational, the company would be able to merchandise those ore reserves in the

market which would substantially improve the operating margins of the company

going forward.

GROWTH DRIVERS

The company's main growth will come from four sources, viz. improvement in

operating margins due to backward integration, starting of its mining operations,

conversion of iron ore fines (a mining waste) into pellets and finally, from its newly

set up power business.

The Company was about to set?up a Beneficiation and Pellet plant of 1.2 MT

capacity which is expected to start functioning by FY12. The company will use low

grade iron ore fines which will be converted into pellets. The cost of low grade fines

is Rs. 400?500 per ton and the conversion cost is Rs. 1200?1400 per ton. The current

realization price is Rs. 3500?4000 per ton, which we believe will substantially add to

the profits of the company going forward. This will further improve the operating

margins of the company.

The Orissa Manganese and Minerals Pvt. Ltd. (OMM), a 100% subsidiary of Adhunik

Metaliks has commissioned its iron ore and manganese mines. OMM has 90MT of

iron ores and 50MT of Manganese ores. Adhunik Metaliks enjoys the merchandising

rights, which places its above rest of its peers. We feel that with OMM becoming

functional, the operating margins will improve substantially going forward and thus,

improving the overall profitability of the company. OMM reported Net Sales of Rs.

45.85 crores in Q4 FY09 as against Rs. 13.16 crores, an increase of 248.5% of which

sale from Manganese ore was Rs. 23.76 crores, sale from Iron ore was Rs. 22.01

crores and sale of Graphite ore was Rs. 0.16 crores in Q4 FY09. The Net Sales

increased by 707% to Rs. 128.25 crores in FY09 as against Rs. 15.90 crores in FY08 of

which sale from Manganese ore was 104.83 crores, sale from Iron ore was Rs. 23.25

crores and sale of Graphite ore was Rs. 0.16 crores in FY09.

Adhunik Metaliks has completed 17MW power capacity in September 08' which has

increased the total capacity to 34MW. The Company has put on hold further

enhancement of 17MW capacity due to the slow?down in the steel sector. The

company is planning to resume the plan once the steel demand and prices stabilize

going forward.

Adhunik Metaliks is setting?up a total 540MW power capacity through its subsidiary

Adhunik Power and Natural Resources (APNRL). The power generated from this

plant will be available for commercial sale. The project will be completed in two

phase: 270 MW in Ist phase and another 270 MW in IInd phase. The project of the

Ist phase has started in April 09' which is expected to be commissioned by 2011?12.

The cost of the project is Rs. 1270 crores which will be financed through Debt: Equity

of 3:1. The IInd phase is expected to commission by 2012?13. The total cost of the

project is Rs. 2600 crores.

Adhunik Group has currently put hold on various CAPEX plan in Adhunik Metaliks,

the reason for such a step is slow down in economy and steel sector as a whole. But

we believe that with the auto sector picking up demand, the company which is the

major supplier to these auto companies will resume the CAPEX plan going forward,

which will further boost up the performance of the company.

VALUATION & RECOMMENDATION:

AML's increased capacity (steel and ferro?alloy) will be fully reflected from FY10

onwards. OMML has also started mining from the Q3 FY09. So, there will be a

significant contribution (due to high margins) by OMML towards the consolidated

net profit of AML, the full effect would be seen in the FY10E.

At the current price of Rs 79.55, the stock is trading at a P/E of 6.1x FY10E & 4.2x

FY11E, which we feel is quite undervalued looking at the huge earnings potential of

the company & the quantum of mineral resources owned by the company.

The current price of Rs.79.55 per share discounts our Target price of Rs.98.90 per

share by 24.3%. We Recommend a "HOLD" Rating on the Stock with a Revised price

target of Rs.98.90 per share (previous Target Rs.100 per share).