Strong ferro alloy realizations coupled with an improvement in operating margin drove Rohit Ferro Tech’s (RFTL) fourth-quarter net profit ahead of our estimates at Rs387 million.
The company remains the prime beneficiary of the buoyant ferro alloy cycle due to its enhanced capacity. During the quarter, RFTL acquired a 60% economic interest in two operational coal mines in Indonesia, further strengthening its raw material linkages.
The stock currently trades at a P/E of 3.6x and an EV/EBITDA of 2.6x on FY10E which is extremely attractive considering the strong ferro alloy realizations coupled with volume growth.
We have valued the newly acquired coal mines at Rs 37 per share on NPV basis, which gives us a revised target price of Rs253 from Rs216. We reiterate our BUY recommendation on the stock.