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SENSEX: 72012.05 -736.37

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Multi Baggers

Sushil Finance

5.30 AM Jan 1st 1970

Alicon Castallo

BSE ID : 531147     NSE ID : ALICON

RECOMMENDED PRICE 292.90

PEAK FROM RECO 1111.00 279.31%

CURRENT PRICE 801.10 Resource id #18

Considering the growth prospects, strong order enquiries, new products and merger of Atlas Castalloy we maintain our robust outlook on the company and recommend to BUY for the revised target price of Rs 420.

Alicon Castalloy Ltd

Alicon Castalloy Ltd. (ACL) recently released its Q4 FY15 performance. The full year top-line was in-line with our estimate; however, the bottom-line was weaker than expected. The board of directors has recommended a final dividend of Rs.3 per share for FY15.

Q4 FY15 Result Highlights (Standalone)

During Q4 FY15, the total income grew 23.9% YoY to Rs.1,438.6 mn. The EBITDA margin improved substantially from 12.9% in Q4 FY14 to 14.2% in Q4 FY15 due to lower raw material costs and personnel costs. On standalone basis, the Company reported an EPS of Rs.6.25 in Q4 FY15 as compared to Rs.5.47 in Q4 FY14.

Q4 FY15 Result Highlights (Consolidated)

During Q4 FY14, the top-line grew 19.1% YoY to 1,612.1 mn while the EBITDA margin recorded a decline from 13.8% in Q4 FY14 to 12.2% in Q4 FY15. The substantial decline in employee costs and other expenses, as a percentage of revenues, was offset by significant increase in raw-material expenses, as percentage of revenues. Further, higher depreciation expenses, finance costs and tax expenditure as compared to previous fiscal led to further decline in the net margin. On consolidated basis, the Company reported an EPS of Rs.4.91 in Q4 FY15 as compared to Rs.7.49 in Q4 FY14.

FY15 Update

During the fiscal, the company received SEBI’s approval to merge casting business of Atlas Castalloy, and the merger is under process. (We will incorporate the financial performance of the merged entity in our valuation model following the approval from high court and disclosure of complete financial details).

The subsidiary of the company, Illichmann Castalloy, witnessed a decline in top-line primarily due to discontinuation of some models. The Management expects to have stable growth from FY17 onwards on account of robust enquiries.

The consolidated performance was negatively impacted by the weakening of Euro against Indian Rupee; further, the higher tax expenses which included prior year’s settlements pressurized the bottom-line profitability of the company.

The profitability was also impacted by the change of product-mix; during the fiscal, the proportion of 2W sales was higher than 4W which is a higher margin business.

The cost of raw materials increased, as a percentage of revenue, from 47.1% in FY14 to 50.8% in FY15; as the average alloy prices increased from Rs.140/kg in FY14 to Rs.155/kg in FY15.

Export sales have increased from Rs.210 mn in FY14 to above Rs.370 mn in FY15; Non- Auto sales have also increased from Rs.402 mn in FY14 to nearly Rs.700 mn in FY15.

Outlook and Valuations

Following our recent conversation with the management and recent performance, we have now revised our earnings estimates for FY16 and have also introduced our fresh estimates for FY17. We now expect ACL to register a top-line of Rs.6,562.7 mn in FY16 with an EBITDA margin of 10.7% and a net margin of 3.7%. Furthermore, we expect the company to post a top-line of Rs.7,298.1 mn in FY17 with an EBITDA margin of 11.3% and report an earnings per share of Rs.~28. Therefore, at current price the stock is available at 18.3x FY15 earnings and 10.2x FY17E earnings. Considering the growth prospects, strong order enquiries, new products and merger of Atlas Castalloy we maintain our robust outlook on the company and recommend to BUY for the revised target price of Rs 420.

Holding Disclosure:

Analyst Stock Ownership - Yes

Stock traded in Last 30 days - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Sushil Financial Services Pvt. Ltd and Group Companies Holding - Yes

Sushil Financial Services Pvt. Ltd and Group Directors Holding - Yes

Broking Relationship with the company covered - No

Disclaimer: Sushil Financial Services Private Limited and its connected companies, and their respective directors, Officers and employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained herein prior to the publication thereof. This sheet is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken in preparing the above, We claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk.

AliconCastalloy_SushilFinance_Multibagger.pdf

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