Issue Opens: 21-Mar-18, Issue Closes: 23-Mar-18, Price Band: Rs.87 - 90
Mishra Dhatu Nigam Ltd (Midhani) is one of the leading producers of special steels and superalloys and the sole Indian manufacturer of titanium alloys. These high value products serve the varied needs of niche end user segments like defence, aerospace and power. The company has steadily launched new products through inhouse R&D and tech tie-ups to meet the growing domestic aerospace and defence demand. Volumes have doubled over the last six years as the company ramped up its new capacities setup in FY14 amid rising demand from domestic aerospace. Led by strong volume growth, the company has clocked revenue/operating profit CAGR of 8.1/11.2% over the FY13-17 span. Enduring customer relationships have been Midhani's hallmark with its top 5 customers contributing 65% of overall revenues in FY17. The company is setting up plants to introduce new products like railway springs, armour steel, aero quality carbon fibers and aluminium alloys besides setting up backward integration facilities like plate making.
Defence & aerospace to drive volume growth over FY17-20E
Midhani products account for less than 1% of global steel demand and the domestic market size for these products stood at 80,000tons in 2016. Frost & Sullivan expects this industry to witness volume CAGR of 6.5% over 2016-21 led by strong demand from defence and aerospace industry in line with the government's focus on 'Make in India'. Midhani seeks to increase its FY17 revenue of Rs.8bn to Rs.20bn by FY22 led by new products launches and ramping up of existing capacity. Demand growth would also be led by sectors like automobiles and oil & gas. We believe the company is in a sweet spot given the expected surge in demand and its tie-ups with major producers. FY18 performance is expected subdued due to shutdown of key plant for upgradation and maintenance. At the upper band, the issue is valued 13.3x FY17 P/E. We believe the stock is reasonably valued given strong earnings potential and enormous domestic opportunities.