Mishra Dhatu Nigam Ltd - IPO Note - Sushil Finance

Price band for IPO - Rs. 87 to Rs. 90
Issue Opens on: March 21, 2018
Issue Closes on: March 23, 2018

Mishra Dhatu Nigam Ltd (MIDHANI) was established in the year 1973, with an aim of achieving selfreliance in the research, development and supply of critical alloys and products of national security and strategic importance. It is one of the leading manufacturers of special steels, superalloys and only manufacturer of titanium alloys in India. These are high value products which cater to niche end user segments such as Defence, Space and Power.

Their products are key ingredients for strategic sectors in India, which typically cannot be imported from other countries due to its national security related concerns.

With the growth of business and operations, Midhani achieved the status of a 'Mini Ratna', Category-I company in 2009. It is one of the few metallurgical plants of its kind in the world, designed to manufacture a wide range of special metals and alloys using integrated and highly flexible manufacturing systems. Most of the orders executed by the company are in the nature of an import substitute.

Presently, they conduct their operations at the manufacturing facility in Hyderabad. They are in the process of setting up two new manufacturing facilities at Rohtak and Nellore. They are also in the process of developing composites using carbon fibre for the aerospace sector, atomized metal (tungsten) powders for 3D Printing applications and armours for strategic sectors along with supplying helical compression springs to the Railways, all over the next 3 years.

With the constant developments made over the years in various operational areas, by utilizing in-house research and development capabilities, company indigenized various critical technologies, alloys and products which reduced dependence on imports of these critical materials.

HIGHLIGHTS

1. Capability to manufacture wide range of advanced products.
2. Most advanced and unique facilities.
3. Strong long term customer relationships.
4. Research and development based technology development.

Objects of the issue

1. To carry out the disinvestment of 46,835,000 Equity Shares by the Selling Shareholder constituting 25% of Company's pre-Offer paid up Equity Share capital.

2. To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

OUR VIEW

Mishra Dhatu Nigam, the specialised metals arm of the Indian Government, is well positioned to benefit from the requirements of the defence sector to upgrade itself, and the increase in number of space launches (double in2018) by ISRO to meet growing demands.

Financially, being a PSU, the company experiences moderate growth, with the revenues, EBITDA & net profit having grown at 7%, 8% and 6% respectively over the last 5 years. The margins on average have been stable at 24% EBITDA Margin and 15.3% PAT Margin over the last 5 years. The average ROE and ROCE between fiscals 2013-17 were 20.6% and 20.2% respectively.

Valuation wise the issue price of 87 after considering the discount, is priced at 2.3 times the book value and the P/E Ratio is 12.9x based on F.Y'17 earnings. This is reasonable considering the monopoly position of the company. The P/E based on Sept'17 earnings comes to 30x, but that is because of a manufacturing facility being closed for up-gradation for 9 months during F.Y'18 impacting the earnings. However, such maintenance has been conducted for the first time since inception 3 decades ago, so it is not a reason for concern.

Looking at the technological expertise, the future growth prospects of the industries MIDHANI caters to and its monopoly in the manufacture and supply of specialised metals in the country, we advise investors to subscribe to the issue and stay invested for the medium to long term.

Source : Equity Bulls

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