IMFA stock outperforms most metal stocks year to date, rupee depreciation helps sales

The stock of Indian Metals and Ferro Alloys, IMFA, has risen twice as much as most metal stocks year to date giving returns of 32% compared with 16% returns on the BSE Metal Index. The depreciation of the rupee since the beginning of this year is possibly one of the reasons for the optimism in the stock since IMFA earns about 85% of its revenue through exports.

IMFA is India's largest integrated ferro alloy manufacturer with an annual capacity of 275,000 tonnes. Ferro chrome is used in the manufacturing of stainless steel thereby making the company largely dependant on the stainless steel industry.

Over the past four quarters the company's operating profit margins have been under pressure as prices of ferro chrome declined sharply during the second half of 2011 whereas input costs kept increasing.

During the March 2012 quarter the company registered sales growth of 10.4% to Rs 304.71 crore whereas net profit declined 9.97% to Rs 22.04 crore. In the coming quarters the company is likely to benefit from the rise in ferro chrome prices and also from the commissioning of its 2x60 mega watt captive power plant which is expected in the July-September 2012 quarter.

With a PE of 12.6 times the stock trades at a premium to its peers Jindal Stainless and Facor Alloys which trade at 9.3 times and 2.3 times, respectively.