OVERVIEW: Industry: Alloys and Others: Stainless steel is essentially a steel alloy of iron (with a minimum of 10.5% chromium) which exhibits properties of exceptional strength, corrosion resistance, is malleable and ductile and therefore can be rolled into sheets, wires, tubes, plates etc. to cater to the demand of heavy industries, building & construction, consumer goods etc. As per Data Bridge Market Research, the global stainless steel market is an estimated value of USD143.03bn by 2026 registering a CAGR of 5.6% in the forecast period. Moreover, the Stainless Steel Forgings Market has been emerging as an astoundingly approved sector. Apart from the stainless steel alloys, the market has been trying to find low volume high value niche and innovative products. One of which are the Master Alloys. On the basis of the type of alloys produced, the market has been divided into chromium alloys, vanadium alloys, molybdenum alloys, copper master alloys, aluminium master alloys, etc. Among these, aluminium master alloys which are extensively used in automobiles and consumer goods industry are projected to hold the largest market share by 2024. On the basis of application, the market has been segmented into stainless steel, iron, titanium production, superalloys, aluminum industry, powder metallurgical, metal anhydride alloys etc. The market for high performance alloys is anticipated to grow at a gradual but steady growth rate. The growth is expected to arise due to increasing demand from the aerospace and defense industry. In addition to this, the oil & gas industry also has a significant market share and represents one of the major end-user industries for the high-performance alloys market. A large number of players across the globe are trying to tap the opportunities arising from the niche and innovative segment of exotic metal alloys. On the basis of market segmentation by types, exotic alloys can be classified as stainless steel, alloy steel and carbon steel while on the basis of applications; the same is classified as aerospace, automotive, energy field and others. A large number of market participants in the business of stainless steel alloys and super alloys are looking at exploring opportunities related to titanium and allied products. Titanium is a silver grey coloured metal which exhibits the properties of high melting point, corrosion resistant properties, good thermal properties and strength to weight ratio. Due to these superior properties, titanium is used in production of super light high speed aircrafts, satellites, space crafts and ships. Aerospace & aviation industry is the major end user of titanium. The global demand for titanium related products market will be propelled by rising demand in aircraft carriers, defence equipment’s and various other chemical processing industries such as oil & gas. Titanium and its alloys are highly compatible with carbon fiber which are known to improve the tensile strength of the aircraft frame and also provides excellent prevention to metal corrosion. Aerospace grade Ti-6Al-4V alloy typically consists of Vanadium (V) of 4 wt% and aluminium (Al) of 6 wt%.Titanium and its alloys also have high thermal coefficient which provides enhanced stability to the aircraft at high engine temperature. Moreover, Titanium alloys provide protection from galvanic corrosion in the joints of the aircraft. As a result of this, titanium alloys are replacing aluminium alloys and steel-based materials in areas where high strength is required. Titanium alloys also have applications in the marine industry where the same is used in ocean engineering for desalination pipes, offshore oil drilling pumps, valves, pipes etc. Titanium products exhibit properties like inertness to UV rays and self-cleaning properties and thus has applications in healthcare industry for making pacemakers, defibrillators etc. In addition to the properties mentioned earlier, titanium has anti-corrosion and biocompatible properties and ability to join with human bone; thus titanium becomes an essential element in the medical field, ranging from surgical titanium instruments to orthopaedic titanium rods, pins & plates and dental titanium. CMP: Rs.123 TARGET PRICE: Rs.160 TIME : 12 months SNAPSHOT 52 week H / L Mcap (INR mn) 160 / 100 22,986 Face value: 10 BSE Code NSE CODE 541195 MIDHANI Annual Performance (Rs mn) FY17 FY18 FY19 FY20E Total Revenue 7,733 6,617 7,108 8,087 EBITDA 1,853 1,909 1,837 2,123 EBITDA (%) 24.0 28.8 25.8 26.3 Other Income 234 292 369 370 Interest 47 86 64 69 Depreciation 177 196 232 298 PBT 1,864 1,919 1,911 2,126 PAT 1,263 1,312 1,306 1,424 Equity ( Rs mn) 1,873 1,873 1,873 1,873 EPS (INR) 7 7 7 8 Ratio Analysis Parameters (Rs mn) FY17 FY18 FY19 FY20E EV/EBITDA (x) 11.4 12.1 12.3 10.7 EV/Net Sales (x) 2.7 3.5 3.2 2.8 M Cap/Sales (x) 3.0 3.5 3.2 2.8 M Cap/EBITDA (x) 12.4 12.0 12.5 10.8 Debt/Equity (x) 0.1 0.2 0.3 0.2 ROCE (%) 24.5 22.4 17.7 16.2 Price/Book Value (x) 3.3 2.9 2.8 2.5 P/E (x) 18.2 18.4 17.6 16.2 Shareholding Pattern as on 31st March, 2019 Parameters No of Shares % Promoters 138,631,600 74.00 Institutions 37,489,150 20.01 Public 11,219,250 5.99 TOTAL 187,340,000 100.00 Quarterly Performance Parameters (Rs mn) Jun-18 Sep-18 Dec-18 Mar-19 Sales (Net) 1,060 1,152 1,532 3,364 EBITDA 211 348 172 1,107 EBITDA (%) 20 30 11 33 Other Income 66 44 135 124 Interest 12 11 18 22 Depreciation 52 60 60 60 PAT 118 208 169 795 Equity ( Rs mn) 1,873 1,873 1,873 1,873 Page No 1 Mishra Dhatu Nigam Limited July 09, 2019 PICK OF THE MONTH VOL-5, NO-5 Please Turn Over BUY Source: Annual Report Note: All the data is calculated as per Market Price on 08th July, 2019
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OVERVIEW: Industry:
Alloys and Others:
Stainless steel is essentially a steel alloy of iron (with a minimum of 10.5%
chromium) which exhibits properties of exceptional strength, corrosion
resistance, is malleable and ductile and therefore can be rolled into sheets,
wires, tubes, plates etc. to cater to the demand of heavy industries, building
& construction, consumer goods etc. As per Data Bridge Market Research,
the global stainless steel market is an estimated value of USD143.03bn by
2026 registering a CAGR of 5.6% in the forecast period. Moreover, the
Stainless Steel Forgings Market has been emerging as an astoundingly
approved sector.
Apart from the stainless steel alloys, the market has been trying to find low
volume high value niche and innovative products. One of which are the
Master Alloys. On the basis of the type of alloys produced, the market has
been divided into chromium alloys, vanadium alloys, molybdenum alloys,
copper master alloys, aluminium master alloys, etc. Among these,
aluminium master alloys which are extensively used in automobiles and
consumer goods industry are projected to hold the largest market share by
2024. On the basis of application, the market has been segmented into
Thus, all these upcoming projects and planned capex provides a visibility of growth in the next 2-3 years.
Page No 4 Please Turn Over
Exhibit 04: High-end Engineering Application
Source: Midhani Presentation May 2019, Progressive Research
Exhibit 03: Product Range
Source: Midhani Annual Report FY2018, Progressive Research
Source: Midhani Presentation May 2019, Progressive Research
CMP: Rs.123 TARGET PRICE: Rs.160 TIME : 12 months
Mishra Dhatu Nigam Limited
July 09, 2019 PICK OF THE MONTH VOL-5, NO-5
BUY
INVESTMENT RATIONALE: (B) Make In India:
In January 2019, Midhani signed an agreement (non-equity) to work
together on development and production of advanced materials for the
energy sector with Tubacex, a Spanish multinational. The agreement
essentially aims at fostering technological alliance and promotion of
local manufacturing capacities which will be used for both domestic
consumption as well as export markets. India has immense potential of
becoming a world leader in the development of nuclear energy, if the
issues related to the industry in terms of safety, quality and energy
efficiency are dealt properly. On the other, Tubacex sees immense
potential in some key multi annual projects via the strategic tie-up.
Earlier in 2015, Tubacex had entered India through the acquisition of
Prakash Steelage, a Gujarat based company. Tubacex has nearly 20
manufacturing plants spread across various markets and is looking at
further expansion. Exports account for nearly 80% of the production for
them. Once again, keeping the Make in India project in sight, the
agreement will not only help boost the country’s domestic requirements but also propel exports to other markets. In the initial stage,
the alliance intends to focus on oil & gas and energy sectors and later focus on other energy efficiency segments. The joint
development would also allow exploring the potential of advanced materials for the energy sector which particularly would focus on
super critical power projects and promotion of local manufacturing capacities at the same time.
In May 2019, Hindustan Shipyard Limited (HSL), Bharat Heavy Electricals Limited (BHEL) and Mishra Dhatu Nigam Ltd
(Midhani) have recently come together to float a consortium for building submarine. These three firms have come together to
express their interest in building six submarines. Under the Make in India campaign and in line with the intend of indigenous
construction of these conventional submarines is envisaged by Ministry of Defence (MoD). The agreement also intends to combine
the expertise of the three companies and construct the submarines domestically.
(C) Into Biomed: Midhani has been extending its wings in the area of bio-medical technology where the focus is to develop and manufacture Titanium
bio-implants using advanced technologies. The company has successfully matched international standards for bio-medical use of
indigenized Pure Titanium, Titanium Alloys and Stainless Steels in the field of biomed. The company also has the capability of
producing high quality bio-implants which match global standards & specifications for the Indian Market. Midhani has successfully
developed, manufactured and commercialized nearly 135 types of implants in more than 1060 variants. Thus, with an aim to
increase its market of bio implants, recently in June 2019, Midhani has signed MoU with Hindustan Antibiotics Ltd (HAL).
The company has been manufacturing bio-implant products since 2001; however, they did not market the products since their focus
was on space, defence and nuclear sector. The company has not yet explored the maximum potential of this segment, where the
potential to scale is from current Rs10mn to maximum potential of Rs1000mn and Rs50mn appears to be an immediate target for the
company.
As per Management commentary, Midhani does not have a team to market this product door-to-door or talk to doctors to market
their products; and thus the role has been taken over by HAL which has extensive network in government hospitals. Officials of
HAL have agreed to market the products in India and help them export as well. Marketing bio-implants is a new challenge to HAL
as well; however, they have expressed confidence with their strong marketing team.
Page No 5 Please Turn Over
Exhibit 05: Functions Of Packaging:
Source: Midhani Annual Report FY2018, Progressive Research
Exhibit 06: Biomed Products
Source: Midhani Annual Report FY2018, Progressive Research
CMP: Rs.123 TARGET PRICE: Rs.160 TIME : 12 months
Mishra Dhatu Nigam Limited
July 09, 2019 PICK OF THE MONTH VOL-5, NO-5
BUY
INVESTMENT RATIONALE:
(C) Into Biomed (contd.):
Furthermore, Midhani is reported to have undertaken design, development and supply of various types of custom-made shoulder
prosthesis, hinged knee joints and total femur prosthesis. The company has developed these bio-implants and prosthesis via
interaction with leading orthopaedic and surgical oncologists. Many of these products have been well received in the Medical
Industry. These have been appreciated by medical experts for their workmanship, quality, mechanical properties and (affordable)
pricing. Some analysts have estimated an annual worth to a tune of more than Rs2500mn. Midhani products are used by prominent
hospitals, Cancer Institutes in Chennai, Apollo Hospital, Kamineni Hospital, Osmania General Hospital, Gandhi Hospital in
Hyderabad, Tata Memorial Centre in Mumbai and many more institutes. With an objective to prevent inferior products from coming
into the market and to offer better Health Care to the patients, in a recent development, the Union Health Ministry has brought
Medical Devices under the Drugs and Cosmetics Act to safeguard the same. Bio Products by Midhani are approved by Drug Control
Authority for Bio-Implants & Prosthesis from Drug Administration Department, Andhra Pradesh. Midhani has the capacity and
capability to meet the requirement for the critical orthopaedic implants in India.
In a recent newspaper article, the Management also cited about company’s future plans to foray into stents used in cardiac medical
surgeries. These products are currently in the evaluation phase of R&D and will be launched once the company has enough
evaluation data. Moreover, the Management also mentioned about Kazakhstan government via UKTMP (a representative firm of the
country) expressing its willingness in collaborating with Midhani to produce bio-implants, which is subject to due diligence and
viability of such projects and developments if any. This clearly looks like a strategy to mitigate risks, when the defence orders could
be sluggish.
(D) Expansion-cum-Diversification:
There are no two thoughts that Midhani is on an expansion-cum-diversification mode. The company is reported to have being
setting up an integrated plate mill, a 3D printing facility for alloy powders & carbon fibre materials and is at an advanced stage of
finalising plans for a Rs40bn unit with Nalco. In January 2019, the company was reported to be in the process of implementing
Rs5bn expansion plan, including Rs4bn versatile plate mill, a 3D printing facility along with other infrastructure upgradation across
units. The Rohtak facility of Midhani is being upgraded and expanded, the same is anticipated to finalise plans for a 3D printing
facility for material powders.
There is an outright growth in traction for value added downstream products related to aluminium related products. In recent
developments, Nalco has formed a joint venture with Midhani for the production of special alloys. The JV is anticipated to be named
Special Aluminium Company and the same has got the seal of approval from NITI Aayog as well. Funds for the same are
anticipated to be raised through a mix of debt and equity in the ratio of 70:30. Moreover, Nalco is seeking a technology partner who
can acquire up to 10% stake in the joint venture. (Source: Business Standard).
The company is in advance talks with NMDC and is hopeful its partner will complete the due diligence for finalising acquisition of
minority stake in a tungsten mine at in Vietnam. The two companies had signed up in 2016 to explore tungsten assets in India and
abroad with a view for investment and development and convert it to Ammonium Para Tungsten. Masan group of Vietnam which
operates a mine that produces big quantities of this strategic input used in defence applications. Midhani is in the process of setting
up a plant in Hyderabad which will enable them to make tungsten products which is independent of the progress with NMDC and its
acquisition of stake in Masan whereas NMDC stake buy will secure raw material.
In the long run, companies which are innovative and technologically advanced will survive while the rest will either dissolve or
merge with other advanced companies. With view of the necessary technological development Midhani is also focusing on new
process based technologies such as closed–die forgings, investment castings, isothermal forging and using special alloys to further
improve our existing products and add new products to our product portfolio.
Financials: The company is a low volume but a high value manufacturer of niche products. It will thrive well and earn profits through push on
value-added products and reduction in cost at the same time. Management intends to reduce, reuse and recycle to reduce dependence
on raw materials. Moreover, the Management also intends on retaining and increasing the existing market share and try to enter and
develop new products market.
Nearly 78.10% of the total turnover comes from the segment of other alloy steel in semi-finished forms special stainless steel while
approximately 16.76% of the turnover comes from the segment catering to Titanium and Titanium base alloys.
Both the Indian defence as a segment as well as ISRO appear to have very bright future as result of which the cumulative order book
position of Midhani as on 13th June 2019 is about Rs19bn, which clearly is providing a visibility of growth and a bright future for
the next two years atleast.
The Ebitda margins for the company over the last 3-4 years have been in the range of 24-28% while the Net profit margins have
been in the range of 15.5% to 18.0% in the last 3-4 years. There was sluggishness in the orders in the last 2 years; however, the same
seems to have been overcome. One may notice dividends shared by the company have been gradually increasing over the last
3-4 years. All these factors sum up to the positives of strong upcoming financial years.
Page No 6 Please Turn Over
CMP: Rs.123 TARGET PRICE: Rs.160 TIME : 12 months
Mishra Dhatu Nigam Limited
July 09, 2019 PICK OF THE MONTH VOL-5, NO-5
BUY
Risks and Concerns: Some of the critical raw materials such as nickel,
cobalt, tungsten etc. are imported by the company
from a number of countries like Russia, China and
Australia, which invites exposure to price volatility.
Any shortage in supply of the key raw materials will
lead to an increase in the prices of the products.
Along with this, the company with no doubt is
exposed to forex fluctuations which is difficult to
mitigate. This adds to little uncertainty in terms of
cash flows and revenues generated, thus affecting
the financial condition of the company. Another
major risk is the absolute dependence on ISRO and
other Indian Space explorers which account for
nearly 70% of the total revenues. The Management
has realised the same and is gradually trying to
de-risk this dependency on government orders.
Midhani has to constantly strive for timely and
satisfactory execution of the orders in hand as well
as at the same time develop new technologies. Thus,
one will witness constant volatility, uncertainty,
complexity and ambiguity in business going
forward as well.
Outlook and Recommendations:
The defence sector can many a times enter into a lull period in terms of order flows, which directly impacts all the players catering
to the industry. So one must be aware of this major risk, which is essentially related to the macro and then that related to the budget
allocations in this industry.
Innovation will remain the crux for growth of Midhani. Innovation in production processes along with optimum utilization of
available resources to reduce production costs will improve the profitability of the company. The company also proposes to focus on
new process based technologies such as Closed-Die Forgings, Investment Castings and Isothermal Forging. New products including
Carbon Fiber, Tungsten Powder and Armour products will also be some value additions products which the company has projected
to work on.
The company will not shy away from new collaborations that will help add new products to their portfolio. It seems to be taking
small steps towards exploring exporting opportunities. In order to mitigate the risks associated to undulating nature of the defence
orders; the company appears to have devised a plan to explore opportunities in the biomed division. Business development too will
be an add on to the overall turnover where new sectors like Railways, Oil & Gas, Automobile, Coal Fields etc. are identified by the
Management. All these factors tend to show a promising future for Midhani and thus a cushion for long term investments, thus we
initiate a BUY on the stock with a target price of Rs160 over a horizon of 12 months.
Page No 7
Source: Midhani Annual Report FY2018, Progressive Research
Exhibit 07: SWOT Analysis
Exhibit 08: Price vs. Nifty
Source: ACE Equity
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