18/09/2007
Buy Ashapura Minechem, target Rs 564: A.C.Mehta
Asit.C.Mehta research is bullish on Ashapura Minechem and has maintained buy rating on the stock with target pric of Rs 564.
A.C.Mehta research report on Ashapura Minechem
Investment Rationale
Growing demand for Bauxite from China:
The growing production capacity of alumina and aluminium in China creates strong demand for Bauxite. China is expected to produce 14 million tones in 2008E and 16 million tones of Aluminium in 2009E (1 tone aluminium requires minimum of 4 tones of Bauxite). Considering the estimated Aluminium production, Bauxite requirement for next two years FY08E and FY09E period is expected to be of 56 million and 64 million tones respectively. AML expects to sell 7 million tones of Bauxite in 2008E and 8.5 million tones in 2009E, of which export to China would be 5 million tones in 2008E and 6 million tones in 2009E. Bauxite sales is going to remain the growth driver for the company’s top line.
Value addition:
AML has been continuously moving ahead in chain of value added products for its frontline products Bauxite and Bentonite.Such Valued added products fetches better operating margins than its raw minerals.
Diversification Plans: Alumina Manufacturing:
AML is setting up a 1 million tones Alumina refinery at Kutch,Gujrat .Such investment is a 50:50 joint venture between AML and Chinese Company SAAL. Kaolin: AML has just entered into the business of Extracting Kaolin and has initiated its operation by acquiring mines in Kerala, which would have production capacity of 180000 tonnes.
Iron ore trading:
AML has expanded its operations by venturing into trading of iron ore. AML is expected to sell around 500000 tones in 2007- 08E and 600000 tones in 2008-09E Valuation and recommendations We expect the company to register a 2-year EPS CAGR of 39% till FY09. At CMP of Rs.384.00 the stock is trading at 6.50x FY08 & 5.44x FY09 earnings per share. We initiate coverage on Ashapura Minechem Limited with a BUY recommendation and price-objective of Rs.564 (implying a forward P/E multiple of 8x)
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