Adhunik Metaliks Ltd (AML) is a Rs8bn flagship company of the Kolkata-based Adhunik Group of Industries incorporated as Neepaz Metaliks Pvt Ltd in the year 2001. The current market cap of the company is a little above Rs10bn. Adhunik Metaliks Ltd is currently setting up a 540 MW power plant at Jharkhand and is to be completed by 2012. Along with this, AML is also venturing into merchant power and mining. They have high quality iron ore and manganese reserves thanks to their subsidiary Orissa Manganese &Minerals. Adhunik Metaliks Ltd?s steel business is likely to gradually take a backseat as the company shifts focus to Merchant mining and power.
Mr. Manoj Kumar Agarwal, Managing Director, Adhunik Metalliks Ltd (AML) is one of the promoter?s of Adhunik Group. As an entrepreneur, Agarwal has played a major role in shaping up the future operations of the group. He started as a young and dynamic engineering graduate from the REC, Kurukshetra. It was under his leadership that Adhunik Metalliks visualized the road map of growth by converting the vision and mission of founder Late Mahadeo Prasad by setting up various integrated steel plants and manufacturing facilities across East India. Manoj K Agarwal promotes the metal, coal and power sector within the group. Besides being the MD of Adhunik Metaliks Limited, he is a Promoter and Director of the following Group Companies - Adhunik Alloys & Power Ltd, Adhunik Thermal Energy Ltd, Unistar Galvanisers & Fabricators Pvt. Ltd., Orissa Manganese & Minerals Pvt Ltd. Ved Vyas Ispat Ltd., Neepaz V Forge (India) Ltd., Adhunik Corporation Ltd., Adhunik Ispat Ltd. and Adhunik Cement Ltd.
Replying to Anil Mascarenhas of India Infoline, Manoj Kumar Agarwals says, "Adhunik Metaliks is well placed to capture the opportunities available on revival."
The steel industry has seen a roller-coaster ride. Are you seeing a pick-up in demand?India?s economic growth is contingent upon the growth of the Indian steel industry. Consumption of steel is taken to be an indicator of economic development. While steel continues to have a stronghold in traditional sectors such as construction, housing and ground transportation, special steels are increasingly used in engineering industries such as power generation, petrochemicals and fertilizers. India occupies a central position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernization and up gradation of older plants, improving energy efficiency and backward integration into global raw material sources.
Indian steel sector witnessed a roller coaster ride in fiscal year 2009, wherein the first half of the fiscal witnessed a significant spurt in demand due to expanding oil and gas sector, large infrastructure spending coupled with growth in housing, consumer durables and auto sectors.However, the third quarter experienced a significant fall in the steel demand on account of the global financial crisis. Difficult times prevailed until the Reserve Bank of India and the Central government announced various monetary & fiscal initiatives and thus, the demand once again started picking up during fourth quarter of fiscal.
Emerging economies like India are on the road to recovery which is a positive sign for Steel Industry. Infrastructure activities have picked up with lot of projects restarting which were on halt. The automobile industry is also showing good volume growth which is supporting demand. World steel organization has estimated that the domestic steel consumption in FY 10 will grow at around 6.5%. However we feel that growth can be higher keeping in view that second half will be much better than many analyst feel. With strong demand, prices are also firming up and we believe that it will continue its upward trend in next few quarters.
What growth opportunities are you seeing?In a fast-growing economy, the spend on infrastructure, capital goods and white goods keeps surging. In India, where per capita steel consumption is around 36 kg, against a world average of 139 kg, the growth opportunity for this sector is huge. While the demand for steel will continue to grow in infrastructure sector as Govt has announced various rural and urban development schemes. Estimated growth in Auto and power sector will create demand for special steel. The new airports and railway metro projects will require a large amount of stainless steel.
Adhunik Metaliks is well poised to seize opportunity in special and alloy steel requirements. We have approvals from major automobiles players for supply of alloy steel directly to them or to their vendors. We have also got approvals from Powergrid to capture the growth in power sector. We are also planning to serve the infrastructure and construction sector through micro alloy steel. We have started production of stainless steel to cater to increase demand from airports and railway projects.
What about threats?We don?t foresee any major threat to Indian steel industry as it is more driven by strong domestic demand. Dumping from China and other countries are also adequately checked by Govt.
Do you see steel prices remaining firm?In the current market scenario, we believe that the steel prices will be firm. There won?t be much of an upward or downward spiral as far as prices are concerned because today steel prices are higher in long products and HR coils, which is around US $600 worldwide. In case of any sharp increase or decrease in the prices, it will make the material to move higher in the market. Since most of the economies are under recovery, the freight element will not make any big impact in the demand in the Indian sub continent and China. At the same time, raw material prices are firm. Therefore, on the price front, I do not see big changes
Briefly explain to us your business model?We are engaged in the production of a wide variety of special alloy steel of international quality for different applications catering to automotive, engineering, oil and gas, telecom, defense, power, railways and construction industries. We are producing steel through DRI-BF-EAF-LF-AOD/VD-concast-rolling mill route integrated by coal washery, oxygen plant, ferro alloys, captive power plant, sinter coke oven and other facilities. We also have 25 MT of captive iron mine in Kulum, Orissa and 31 MT of coal block in Talcher, Orissa allotted to us. We strongly focus on the reduction of production costs and zero waste management practices to make us one of the lowest cost producers of quality steel.
Comment on your three business verticals. Being an integrated steel company with natural resources reserves, how are you going about consolidating the same?We have three core businesses i.e. steel, mining & power. In steel business, we have set up 0.45 MT of integrated steel plant in three phases. We are improving operation efficiency and utilization of all the facilities because we believe in steel, profitability lies at your operational efficiency.
In our mining business, we have merchant mining licenses of 90 MT of iron ore reserves and 50 MT of manganese ore reserves at Ghatkuri, Jamshedpur and Koira, Orissa. Both the mines have all the regulatory approvals in place and are operational now. We intend to enhance our mining operations significantly in the next five years to achieve global scale of operations.
We have ventured into the business of power generation through our subsidiary APNRL which is presently setting up a merchant thermal power plant of 540 MW (Phase I & II) at Padampur and Srirampur; district Sareikela-Kharsawan in Jharkhand using coal from captive mines at Ganeshpur Block. We have already placed with BHEL for supply, erection and commission of 540 MW BTG. We have achieved the financial closure for Phase I whereas financial tie up for Phase II is in progress.
In merchant power, what is the outlook?As the Indian economy continues to surge ahead, its power sector has been expanding concurrently to support the growth rate. The demand for power is growing exponentially and the scope of growth of this sector is immense. India's power demand is all set to increase from the present 120 GW to 315 GW-335 GW by 2017, if India continues to grow at an average of 8 per cent over the next 10 years. This would require a five- to ten-fold rise in power production, entailing investments worth US$ 600 billion over the next ten years.
To what extent will the margins improve due to backward integration in steel operations?In 2008-09, we completed our Phase III expansion, the benefits of which translated into margins at par with the previous year, the volatility notwithstanding. The full effect of integration will be visible in 2009-10 when the Company captures more than 75% of its production cost from captive sources, relatively insulating itself from external volatility. We expect that our EBIDTA margins will improve by 300-400 basis points which are also evident in our first quarter results where we have shown EBIDTA margins of 21.63%.
Brief us on your capacity and utilization. What is the ramp up plans?We have 450,000 MT of steel making facilities comprising of Electric Arc Furnace and Induction Furnace. EAF enable us to have better control over the quality which is very essential for special & alloy steel. Out of 450,000 Tonnes Per Annum (TPA), we can produce stainless steel up to 119,000 TPA depending upon demand from stainless steel sector. In Metaliks, we have sponge iron capacity of 270,000 TPA and pig iron/hot metal capacity of 214,000 TPA. Above facilities are well supported by rolling mill of 220,000 TPA, captive power plant of 34 MW and Ferro Alloy of 50,000 TPA.
We are, currently, operating our steel making and metaliks facilities at around 80% which we plan to enhance to 90%-95%. We intend to enhance our steel volume to 350,000 TPA this year and around 400,000 TPA next year.
Comment on your latest financials. What is the outlook?We have witnessed very uncertain and volatile business environment in last financial year. The big giants have fallen apart as result of the financial crisis. Credit freeze, decreasing prices, volatile currency, all have contribute to lower profits of Indian steel industry. However, Adhunik Metaliks had shown great resilience in those tough times and has reported PAT of Rs301.4mn with EBIDTA margin of 15.27%.
We feel that Adhunik Metaliks is well placed to capture the opportunities available on revival. We expect revenue growth of around 15-20% on standalone basis. We also expect to improve our EBIDTA margins substantially as full benefit of integration will accrue this year. We expect that PAT will be more than doubled this year as last year profit was marred by financial crisis.
Besides growth in standalone results, we expect a significant jump in our consolidated results as we will have full year operations for our both iron ore and manganese ore mines.
You plan to set up an all weather commercial port at Barunei Muhan in Orissa. Tell us more about it.As of now we have not planned a proper flow of events for the commercial ports, as and when we are clear about our operations we would be able to comment on the same.
What are your plans for growth? Any inorganic growth planned? In which areas?We have shown tremendous growth in last few years. We have added merchant mining and merchant power to our business portfolio. We will continue our growth path in all three core business. In steel we intend to enhance our capacity to 800,000 TPA supported by captive resources.
In mining business, we intend to enhance our mining operations significantly in the next five years to achieve global scale of operations by fully developing and mechanizing huge reserve area which we have got. We also have plans to set up a 1.2 MT per annum pellet plant along with iron-ore beneficiation plant and 50,000 tons ferro alloys plant along with 30MW captive power plant, to utilize the fines and low-grade materials, as they do not command a good price in the merchant market.
We will be venturing into power business in big way. We have signed MOU with Jharkhand, Bihar and Chhattisgarh state Govt to set up 1000 MW in each state. Out of 1000 MW planned in Jharkhand, 540 MW is being implemented in district Sareikela-Kharsawan in Jharkhand
Growth will be primarily organic with expansion of existing business. However we will be open to opportunities which will expand our capabilities.
Who are your main customers? What is the revenue contribution from the Top 10?
Our main customers are the following:
Our revenue contributions of the top 10 firms are around 40% of total revenue.
You suffered a forex loss of Rs312mn in FY09. What safeguard measures are you taking? Interest and depreciation costs too mounted. What is the outlook?As discussed earlier, we had seen some exceptional situations in last year because of financial crisis. We were also hit by such sudden and sharp movement of currency. However, now we keep all our foreign exchange liabilities hedged. We understand that we have leveraged our balance sheet for priced acquisition like OMM and investment in APNRL. We plan to bring down debt to sub 1000 level which will help us control interest cost.
We had commissioned and capitalize a lot of facilities which was part phase III expansion in FY 09 which has resulted in increase in depreciation. We don?t foresee any further significant increase as we have completed our three phase expansion.
What are the activities undertaken regarding corporate governance and CSR?Adhunik Group believes in good corporate governance based on sound principles. Some of these governing principles based on which the Company operates, inter alia, comprise: Strict adherence to the law of the land: Our Group believes in meeting all statutory compliances and following the canons of economic, financial and ethical propriety for sustaining the confidence of the investors and stakeholders. We follow transparency in all our activities, giving feedback and making disclosures to all concerned to assure them of the best allocation of resources at the command of the Company.
Periodic evaluations and audit to ensure that the Company is never off-track and management accountability and responsibility are never sacrificed. Decisions are participatory and consensus oriented. Management of Adhunik believes in good team-work at all levels which is reflective of working in a synergistic mode. We are quick in responding in all market situations and sure-footed manner to achieve customer delight and maintain the competitive edge. Adhunik, being a relatively new organization, is totally conscious and seized of its responsibility towards the society at large. It is striving to create an organization that is empowering, enabling, energizing, cost-competitive and quality focused so that sustained growth and excellence can be achieved in ADHUNIK GROUP and in the process nurturing best managerial talent and enabling managers to learn and grow with the organization. For Adhunik, Corporate Social Responsibility (CSR) is an essential part of its overall business philosophy since no longer the business can be seen as basing its decisions solely on economic criteria but must also consider the ethical, moral and social impact of its decisions and actions. Adhunik strongly believes that in order to be a good corporate entity it must be sensitive to the needs and aspirations of the community in which it operates. In line with this thinking it has set up its CSR wing "Nav Nirman Sanstha" (registered under Society act) which is active in the States of Orissa & Jharkhand in the vicinity of all its business locations. CSR thus is an integral part of the Adhunik way of life and it takes keen interest in fostering and developing the human potential and capabilities in its surrounding areas. What is your employee strength? Which sections would you look at hiring fresh talent?The employee strength in Adhunik Group is around 3000 out of which around 800 are in worker category, 1600 are in supervisory & junior management, 260 are in Middle Management and about 100 are in the Senior Management.
We look at hiring fresh talent from the leading Universities, Technical Institutes and Business schools. For example we have hired from REC, NPTI, leading business Schools like IMT Ghaziabad, XISS (Ranchi), IISWBM (Kolkata) etc. We recruit MBAs, Graduate Engineer Trainees and Diploma Engineer Trainees and even B.Scs from leading Business schools, Colleges and institutes in order to build a cadre of technical & managerial personnel. We believe that fresh talent is an essential component of the overall manpower it complements experienced personnel in an organization synergistically and its steady influx is a must for the future growth of the organization.
What are your expectations from B-school students ? What kind of talent are you looking for?Our expectations from the B-School students are that they do relevant projects in their area of interest. And bring in the new concepts to the organization that would make it faster in all spheres, more responsive, accountable and technologically savvy organization.
What would be your advice to a youngster wanting to join your company?Our advice to a youngster joining the firm would be, try to gain as much knowledge as possible about your relevant area; this includes best industry practices, benchmarks etc.
Your dividend policy. Your message to shareholders.We have declared a dividend of 10% in spite of lower profits to reward our shareholders. We will continue to adequately reward our shareholders by dividend and wealth creation. Going forward, we expect to unleash shareholder value through progressive leverage of our existing mining business, enhance utilization of steel business and commencement of merchant power plant.