AKS has an aggressive financial profile (debt $2,973m to $477m of equity) relative to its peers but its debt facilities are long term which reduces refinance risk. Operating cashflow is strong given high commodity prices.
AKS has limited diversity, with direct sales to the automotive industry accounting for 40% of revenues and an additional unknown percentage of indirect sales to the automotive industry through sales to distributors and service centers. The next highest area of sales is to white good manufacturers – another area to experience a sharp slowdown in a recessionary environment.
Given the sharp drop in auto sales and increased fuel costs AKS will experience a sharp drop in sales over 2008 from auto and whiteware industries. The recent climb in metal prices is a bubble risk which is likely to burst sometime this year – which will impact AKS’s revenues.
With an unsustainably high market cap of more than $8.0bn (vs tangible BV of $477m) and a PE of 18.9x, this company is likely to be hit hard over 2008. Share price should fall to $20-$30 by end of 2008. Remember, back in 2006 this company traded in a range of $10 to $16 !
There is a big however,…. and that is market sentiment which is presently heavily biased to commodities and assumes high and sustainable metal prices. I don’t recommend standing infront of this juggernaut but be ready to jump.
$72.36 (06/11/08)
