Adhunik Metaliks (AML) is aggressively ramping up its mining venture with the output of its 100% subsidiary – Orissa Manganese and Mineral (OMML) – expected to reach 0.4mn tonnes of iron ore and 0.2mn tonnes of manganese ore in FY09.
The company’s merchant mines will substantially increase cash flows and consolidated earnings once fully operational. AML expects to unlock value from OOML in the current year. We believe the company is at an inflexion point and will reap the benefits of increasing ore prices.
In the last three years, AML has taken significant steps to transform its business model from sponge iron production to setting up a rolled mill, steel melting shop. It is now venturing into the auto ancillary space with backward integration into mining.
We have revised our target price and projections to factor in the changing price scenario and progress with the business diversification and expansion plan to Rs209. Using the SOTP approach, we have valued OMML on an NPV basis and the core operations on an EV/EBITDA basis (4x FY10E, a discount to average industry multiples).