Mishra Dhatu Nigam - Expect ~20% revenue CAGR over FY21-23E - ICICI Securities

Mishra Dhatu Nigam (Midhani) recorded Q4FY21 Revenue and EBITDA of Rs3459mn (up 70%YoY) and Rs1031mn (up 106% YoY). EBITDA was marginally below estimate driven by lower than expected gross margins (at 68%) and EBITDA margins (at 30%). Orderbook has also declined YoY to Rs13.53bn (against Rs16.84bn). This has been driven by weaker than expected order inflows for FY21 at Rs4822mn. The orderbook inflows is expected to pick up in FY22 driven by already strong orderbook in defence PSUs and space budget coming back to normal post a weak FY21. We expect revenue, EBITDA and PAT CAGR of ~20% over FY21-23E. Maintain BUY.

 Margins continue to remain healthy. FY21 EBITDA margins at 30.2% increased 250bps YoY despite a weaker than expected Q4 margin performance. Also, change in mix (more towards defence) has led to lower gross margins (74% for FY21 vs 83% for FY20). The reason EBITDA margin could improve despite having a weaker gross margin is on account of operating leverage. And we believe that there are still significant triggers for EBITDA margin improvement as topline growth materialises over next two years. Thus we believe our assessment of ~20% PAT CAGR (FY21-23E) given ~20% revenue CAGR in the same period, is conservative.

- Orderbook decline has bottomed out and should see improvement over next two years. Orderbook declined for second successive year. Orderbook dropped 20% YoY to reach Rs13.5bn, implying an order-inflow of Rs4.8bn against an execution of Rs8.1bn. This is understandable due to a sharp reduction in space budget witnessed in FY21 (down 40% YoY) and defence order inflow will be witnessed in FY22E ( high orderbook in HAL and expectantly high order inflow in BDL being the key drivers). Also budgetary allocation for space has been restored in FY22E.

- FCF of Rs166mn in FY21, dividend cash outflow of Rs517mn. Contrary to expectations, working capital management has been much better for the past three years. EBITDA to CFO conversion has been 91% for FY21 (175% in FY20). Capex seems to have been deferred - Rs 1.6bn spend in FY21. With a 14% topline and 24% EBITDA growth for FY21, the working capital management definitely looks commendable. Net debt is ~ 665mn.

- Maintain BUY. Low current utilisation and higher value blend through supplies to ISRO and defence can help increase Midhani's topline meaningfully over the next 2- 3 years. We expect RoCE to cross 20% as topline accretion takes shape. Capex remains limited; improvement in working capital and moderate capex will also help generate FCF.

Shares of Mishra Dhatu Nigam Ltd was last trading in BSE at Rs.208.3 as compared to the previous close of Rs. 210.35. The total number of shares traded during the day was 176769 in over 2930 trades.

The stock hit an intraday high of Rs. 218.65 and intraday low of 207.05. The net turnover during the day was Rs. 37423265.

Source : Equity Bulls

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