Mishra Dhatu Nigam (Midhani) has reported a decent topline performance in Q1FY21 at Rs1.14bn (down 14% YoY). The reduction in topline reflects 45 days of shutdown in Q1. There has been a meaningful compression in gross margins from the quarterly runrate of FY20 - perhaps due to order mix. Q1FY21 would have been defence heavy to result in gross margins declining from 91% to 64% YoY. Given the breakup in FY20-end orderbook, with ~80% of orderbook comprising of space orders - FY21 execution for Midhani will be space heavy. We have seen a new timeline for Chandrayan III - with lander and rover and no orbiter. Budget allocation across GoI ministries should expectantly come down in H2FY21 - defence, space irrespective. However, the relatively smaller size of the space budget may still allow it to see lower contraction. We maintain BUY.
- Orderbook and order inflow. Current orderbook is Rs17.3bn against Rs16.8bn QoQ. Q1FY21 saw Rs1.62bn of order booking. Midhani has previously guided for FY21 order inflow at Rs7.5bn, 70% of which would be from defence. A large part of the order inflow may accrue from Akash (allotted to BDL), the future expected order of Tejas (Titanium alloys - another high value order which can help maintain margins similar to space order) etc.
- On Q1FY21 performance from FY20 annual report. There was a disruption in production activities for about 45 days in Q1FY21. Subsequently, normal production activities resumed with effect from May 20, 2020. Despatch of finished materials also started in the month of May 2020. With improvement in supply chain efficiency post phase-wise easing of the lockdown, management hopes to neutralise the impact of Covid-19 on business for Q1FY21 to some extent.
- Q1FY21 has seen more encouraging deliveries/ RM price movement for Midhani. This includes bulletproof jackets (Rohtak factory is yet to commission), titanium metal for chambers of Gaganayan mission for Indian cosmonauts. The MDN 250 slabs were also supplied to SAIL to roll into plates for Gaganayan mission. Also, there's expectantly a significant surplus expected in nickel due to aggressive nickel pig iron expansion in Indonesia. This can also help surprise margins if procurement can be planned out effectively.
- Maintain BUY. Low current utilisation and higher value blend through supplies to ISRO can help increase topline meaningfully over the next 2-3 years. We expect RoCE to cross 20% as topline accretion takes shape. Capex remains limited with ISRO's share increasing in Midhani's execution, improvement in working capital and moderate capex will also help generate FCF. Budget allocation to space and defence by the GoI in the current environment remains the only point of concern for continued order visibility for Midhani.
Shares of Mishra Dhatu Nigam Ltd was last trading in BSE at Rs.201.05 as compared to the previous close of Rs. 204.3. The total number of shares traded during the day was 26533 in over 737 trades.
The stock hit an intraday high of Rs. 205.05 and intraday low of 198. The net turnover during the day was Rs. 5380410.