Mishra Dhatu Nigam IPO Views (May apply)

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Review By Rudra Shares & Stock Brokers Ltd on March 21, 2018

VALUATION

Mishra Dhatu Nigam is one of the leading manufacturers of high value specialty steel, superalloys and only manufacturer of titanium alloys in India.

The company is also seeking to enter into the new markets of oil and gas, mining, power, railways and chemical and fertilizers. It is also making efforts to enter into export market which it believes will enable it to achieve higher targets.

The company also aims for its geographical expansion. At present, it intends to start 2 new manufacturing units based at Rohtak (in Haryana) and Nellore(in Andhra Pradesh).

Company has also entered into collaborations with Indian and International Research institutions and organizations to gain access for developing certain key advanced technology Products. Moreover, on the upper price band of Rs 90 with annualized EPS of H1 FY18, P/E works out at 30.8x. Mishra Dhatu Nigam's business looks attractive but high valuation at current level fails to infuse optimism in company, hence recommend NEUTRAL, on issue.

THE OFFER

• Issue Open:21 Mar 2018 to 23 Mar 2018
• Issue Type: Book Built Issue IPO
• Issue Size: Offer for Sale of 48,708,400 Equity Shares @ 10 aggregating up to 38 Cr
• Face Value: 10 Per Equity Share
• Issue Price: 87 - 90 per Equity Share
• Market Lot: 150 Shares
• Minimum Order Quantity: 150 Shares
• Listing At: NSE, BSE

Companyis offering discount of Rs 3 per equity share on issue price to investors in retail and employee category

CAPITAL STRUCTURE

The share capital of Company is set forth below:-

(Amount in Rs except share data)

Authorized Share Capital:-

200,000,000 Equity Shares @ 10 Aggregate value 2,000,000,000

Issued, subscribed and paid up capital before the Issue:-

187,340,000 Equity Shares @ 10 Aggregate value 1,873,400,000

Present Issue: - Offer for Sale of 48,708,400 Equity Shares @ 10 aggregating up to Rs 438.38 Cr

OBJECT OF THE OFFER

The objects of the Offer are:

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

Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

COMPANY OVERVIEW

Mishra Dhatu Nigam is one of the leading manufacturers of high value specialty steel, 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. It has the technological ability to manufacture a wide range of advanced metals and alloys under one roof.

The company is also seeking to enter into the new markets of oil and gas, mining, power, railways and chemical and fertilizers. It is also making efforts to enter into export market which it believes will enable it to achieve higher targets.

Company has entered into collaborations with Indian and international

Research institutions and organizations to gain access for developing certain key advanced technology products.

It also intend to focus on new process based technologies such as closed die forgings, investment castings, isothermal forging and using special alloys to further improve its existing products and add new products to its Product portfolio. Such new Products include carbon fiber, tungsten powders and armors which find use in strategic sectors. Defence and space accounted for 71.56% and 22.43%, respectively of its total revenue from operations in FY2017.

As on January 31, 2018, it had an order book position of Rs 517cr comprising of Rs 283cr for defence, Rs 168cr for space and Rs 66cr for other sectors.

The company also aims for its geographical expansion and to operate from multiple locations. At present, it intends to start 2 newmanufacturing units based at Rohtak (in Haryana) and Nellore (in Andhra Pradesh).

It has signed a memorandum of understanding for setting up a joint venture with National Aluminum Company (NALCO) for production of high-end value added products at aluminum alloy plant at Nellore.

The manufacturing unit at Rohtak will be set up by the company for manufacturing of armor products.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Growth and modernization.
• Increased focus on research and development.
• Strengthen human capital.

STRENGTHS

• Most advanced and unique facilities.
• Capability to manufacture wide range of advanced products.
• Strong long term customer relationships.
• Research and development based technology development.
• Highly Qualified and Experienced Management and Management Systems.

FINANCIAL PERFORMANCE

Total Revenues stood Rs 220.6cr, Rs 833.1cr, Rs 790.4cr and Rs 678.4cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PBT was Rs 47cr, Rs 186.4cr, Rs 161.8cr and Rs 140.7cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PAT was Rs 27.3cr, Rs 126.3cr, Rs 119.3cr and Rs 103.6cr, in six months period ended September 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

RISK FOR THE BUSINESS

• Company currently supply to strategic sectors. A decline on the focus on strategic sectors or change in policies relating to the strategic sectors in the future will have a material adverse impact on business.
• Company's operation is based out of single manufacturing unit in Telangana. The loss of, or shutdown of, operations at unit in Telangana will have a material adverse effect on business.
• Company's manufacturing processes depend on critical alloy making equipments any interruption in production capability may require to make significant and unanticipated capital expenditures to effect repairs, which could have a negative effect on profitability and cash flows.
• Company is exposed to the risk of increase in the price of raw materials and dependence on suppliers for supply of the raw materials.
• Company's future growth and expansion is limited by production capacities and the locations at which company operate.