Alicon Castalloy Ltd. - Q3 FY14 Result Update - CMP Rs.67 - Maintain BUY - INVESt VISTa - Sushil Finance

ALICON CASTALLOY LTD. - Q3 FY14 RESULT UPDATE - CMP Rs.67, Maintain BUY

Alicon Castalloy Ltd. (ACL) released its Q3 FY14 performance on January 25, 2014. The results continued to suggest the slowdown in the industry and prevailing margin pressures. Following are the highlights and excerpts of our conversation with the Management following the results.

Q3 FY14 Result Highlights (Standalone)

- During Q3 FY14, the top-line registered a growth of 4.3% YoY to 1,126.0 mn. The EBITDA margin declined nearly 165 bps y-o-y on account of higher employee benefit expenses and material expenses. On standalone basis, the Company reported an EPS of Rs.2.75 in Q3 FY14 as compared to Rs.4.41 in Q3 FY13.

- On sequential basis, the top-line grew 3.7% from Rs.1,086.4 mn; the EBITDA margin improved from 80 bps while the net margin stood broadly flat at 2.7% on account of higher finance costs and tax expense coupled with lower other income; the Company reported an EPS of Rs.2.75 as compared to Rs.2.74 reported during Q2 FY14.

Q3 FY14 Result Highlights (Consolidated)

- During Q3 FY14, the top-line grew 6.6% YoY to 1,361.5 mn with Illichmann Castalloy contributing Rs.31.3 mn. The EBITDA margin fell from 10.3% in Q3 FY13 to 8.8% in Q3 FY14. The increase in raw material costs, employee expenses and other expenses as a percentage of revenues resulted into a fall in EBITDA margin. The impact of weak performance at the operating level was further carried down to the bottom-line. The Company reported an EPS of Rs.2.96 as against Rs.4.50 in Q3 FY13.

- On sequential basisthe top-line recorded 2.8% growth from Rs.1,324.4 mn while the EBITDA margin improved from 8.4% to 8.8% resulting from fall in employee and other expenses, as a percentage of revenues, partially offset by an increase in raw material. The net margin also improved marginally despite an increase in finance costs and tax expenditure.

Other Updates

- The Promoters continued with the creeping acquisition for yet another quarter. In addition, the Promoters (Mr. Shailendrajit Rai) bought 312,136 shares from Visu Associates at Rs.65 per share on December 31, 2013.

- The Management stated that the business environment has not showcased any significant uptick; however, the two-wheelers have picked up some healthy growth while four-wheelers have continued to struggle during the quarter.

OUTLOOK & VALUATIONS

The Q3 FY14 performance reflected the economic slowdown. The slowdown in the industrial activities has resulted into a moderate growth in the top-line. Accordingly, the performance was slightly lower than our estimates; in light of this, we have lowered our full year estimates accordingly. At CMP of Rs.67, the stock discounts the FY14E EPS of Rs.13.5 by 5.0x and FY15E EPS of Rs.20.8 by 3.3x. In light of strong fundamentals, cheap valuations and robust outlook, we maintain our BUY rating for the stock for the target price of Rs.82. Meanwhile, the stock has come out of the SEBI's 'Periodic Call Auction Session (PCAS)' category, which is likely to have a positive impact on the volumes, going forward. The merger of Atlas Castalloy is likely to be completed during the next fiscal, FY15. However, the merger of another group company, Silicon Meadows is likely to be consummated over the upcoming two quarters. We maintain our positive outlook for the business.

Source : Equity Bulls

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