Mishra Dhatu Nigam - Space order inflow may slow down in FY21 - ICICI Securities

Midhani's new chairman and managing director, Dr. S.K. Jha's commentary highlights that FY20 execution was tilted >60% towards the space sector. Capex for modernisation has led to 60-70% YoY increase in FY20 volumes. Order inflow for FY20 was Rs7.5bn and the orderbook stood at Rs16.8bn with >70% contribution from space. However, space-related orders and execution is expected to slow down over the next few months. >70% of order inflow expected in FY21 would be from the defence sector as select programs on missile development and air platforms indicate prospective ordering for Midhani. Management is striving to cross the MoU revenue target previously placed with the ministry of defence at Rs7.5bn. Maintain BUY.

- Orderbook and order inflow. Current orderbook is worth Rs16.87bn against Rs16.67bn YoY. 70% of it is in space segment, 20% in defence and the rest is a mix of nuclear, oil and gas, etc. Q1FY21 saw Rs1.5bn of order booking. Company expects FY21 order inflow at Rs7.5bn, 70% of which would be from defence.

- Outlook on ISRO program. CMD highlighted that ISRO launches may be delayed by a few months. Orders placed on Midhani need to be executed, but the growing expectation is that there can be a slight delay in terms of delivery timeline.

- Defence order/execution will increase. Midhani highlighted that for any missile order, the corresponding material placement order will accrue to Midhani. Also, HAL's order for 83 LCA Mk 1A will have a corresponding requirement of titanium castings to be provided by Midhani. Company has indigenised a considerable number of components for the Russian marine platforms, but not much for the French.

- Utilisation of assets and peak revenues. Current gross block of Rs5bn can generate >Rs10bn at the topline. Management looks forward to the customerfunded wide plate mill commissioning in FY22. As the (customer-funded) capex of Rs5bn on the same approaches completion, management would expect further revenue uptick from the same in FY22/FY23. Capex for FY21 has been guided at Rs2.1bn.

- Cost-saving programs initiated. Modernisation of equipment has reduced energy consumption from 7% of Value of Production (VoP) to 6% YoY. Utilisation of new equipment has also led to reduction in LPG consumption. Better internal collection of scrap is being focused on reduction in external purchases. Raw material inventory covering 5-6 months has helped Midhani withstand the supply chain shock from the current pandemic. Company remains well diversified in sourcing of raw materials and maintains adequate headroom in negotiated contracts for any possible increase in procurement prices.

Shares of Mishra Dhatu Nigam Ltd was last trading in BSE at Rs.218.35 as compared to the previous close of Rs. 215. The total number of shares traded during the day was 143269 in over 4362 trades.

The stock hit an intraday high of Rs. 223.4 and intraday low of 214. The net turnover during the day was Rs. 31442569.

Source : Equity Bulls

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