Mishra Dhatu Nigam Limited (Midhani) IPO Review

Midhani IPO

Hyderabad based  Mishra Dhatu Nigam Ltd  IPO (Midhani IPO)   comprises offer of sale of 48,708,400 Shares. The defense CPSE and specialty alloy maker will offload 26% of its holding, and the price band is fixed at Rs 87-90. 

Mishra Dhatu Nigam Limited (MIDHANI) IPO Details
Issue Period Wed, March 21, 2018 – Fri, March 23, 2018
Issue Details Offer for Sale of 48,708,400 Shares
Issue Size (Rs. Cr) 432.90 Cr
Employee Reservation 1,873,400 Equity Shares 
Price Band Rs.87 – 90
Retail & Employee Discount Rs.3/- per Equity Share
Bid Lot 150 Equity Shares 
Issue Structure :  
QIB 50% of the Net offer
NIB 15% of the Net offer 
Retail 35% of the Net offer -16,392,400-142.61Cr)
Alplications reqd. for 1 X retail 1,09,283
BRLMs SBI Capital Markets, IDBI Capital Markets
Registrar Alankit Assignment Ltd..
  • (“MIDHANI”) is one of the leading manufacturers of Special Steels, Super alloys 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.
  • MIDHANI was established in the year 1973, with an aim of achieving self-reliance in the research, development and supply of critical alloys and products of national security and strategic importance.
  • MIDHANI has emerged as a ‘National Centre for Excellence’ in advanced metallurgical production of special metals and Superalloys in India. They have the technological ability to manufacture a wide range of advanced metals and alloys under one roof. With the growth of their business and operations, MIDHANI which is a CPSE has achieved the status of Mini Ratna, Category-I company in 2009.
  • MIDHANI nufactures unique combinations of metal and alloys. These special alloys have superior mechanical properties and better workability which are essential for special applications in Aerospace, Power Generation, Nuclear, Defence and other General Engineering Industries. Company’s products are key ingredients for strategic sectors in India, which typically cannot be imported from other countries due to its national security related concerns.
  • MIDHANI conducts its operations at their manufacturing facility in Hyderabad. 
MIDHANI IPO: Financials: 
(Rs. In Cr)
Particulars HY18 FY17 FY16 FY15
Revenue from Operations  208.06 809.71 761.45 655.7
Revenue Growth (%) 6.34% 16.13%
Profit Before Tax 46.95 186.35 161.85 140.75
Profit After Tax 27.3 126.31 119.37 103.63
NPM % 13.12% 15.60% 15.68% 15.12%
Dividend (%) 18.90% 17.86% 20.00%
EPS (Rs.)# 1.46 6.74 6.37 5.53
Share Capital 187.34 187.34 187.34 187.34
Reserves 546.09 517 432.33 352.72
Net worth 733.43 704.34 619.67 540.06
RONW(%) 3.72% 17.93% 19.26% 19.19%
Net Asset Value (Rs.) 39.15 37.6 33.08 28.83
Face Value 10
IPO Price 90
Price/Book Value 2.30
Post Issue Equity 187.34
EPS (Post IPO) FY17 6.74
PE (post IPO) FY17 13.35
CAGR Sales 3 Yrs 13.44%
CAGR Net Profit 3 Yrs 14.78%
Market Cap 1686.06 crore
Market cap / Sales 2.08
Mishra Dhatu Nigam Limited : Rationale for Investment
  •  MIDHANI manufactures special steels like martensitic steel, ultra high strength steel, austenitic steel and precipitation hardening steel. They manufacture 3 varieties of Super-alloys – Nickel base, Iron base and Cobalt base. They also manufacture varieties of titanium alloys.
  • Most of the orders executed by MIDHANI are in the nature of an import  substitute. The company has the competence of developing and manufacturing customised alloys tailor-made to suit the specific requirements of customers for their critical applications. 
  • Company operates in strategic sectors such as defence and space. Its primary customers, defence and space accounted for 71.56% and 22.43%, respectively of its total revenue from operations in Fiscal 2017.
  • As on January 31, 2018, MIDHANI an order book position of ₹ 5,170 million comprising of ₹ 2,830 million for defence, ₹ 1,680 for space and ₹ 660 million for other sectors.
  • MIDHANI has the only facility in India to carry out vacuum based melting and refining through world class vacuum melting furnace such as vacuum induction melting, vacuum arc re-melting, vacuum degassing/ vacuum oxygen decarburization, electro slag re-melting and electron- beam melting.
  • Company has successfully produced Hafnium metal having vital application
    in the space sector for the first time in the country using state of he art electron beam melting furnace. MIDHANI has also manufactured large nickel super-alloy based casting through air induction melting route
Risks & Concerns:
  • Only one plant is functional at present
  • MIDHANI order inflow could be erratic  given the its business which depends on defence  & Space industry. 
  • Near term results could be affected by a shutdown in HYFY18
  • Order book is low

MIDHANI IPO: Assessment

  • MIDHANI Order book corresponds to  about one year Revenues which is  not very comfortable considering the segments it operates.
  • MIDHANI has no debt in its books
  • MIDHANI is One of the sole producer of titanium alloys
  • First half of FY17-18  was weak due to maintenance shutdown. This may impact price in short term.  Topline growth should be more than 10 percent going ahead because of setting up two new facilities at Rohtak and Nellore.
  • MIDHANI remains one of the few metallurgical plants of its kind in the world having capabilities to manufacture a wide range of special metals and alloys using integrated and highly flexible manufacturing systems
  • Company’s has shown good growth rates for last three years with CAGR of 13.5% in revenues and CAGR of 14.78% in PAT.
  • MIDHANI’s  employee cost as % of sales came down from 17.2% to 13.9%. 
  • Caution is warranted as Govt Controlled companies has been hitting new lows on the bourse and have seen tepid investors interest. 
  • The market appetite for Government scrips has been quite low as shown in case of HAL and Bharat Dynamics IPOs. MIDHANI may turn out a somber performance in this year due to a prolonged shutdown taken for maintenance.  MIDHANI pricing is OK and it does have some strengths but order book is a matter of concern. I am neutral to slightly +ve on the issue. Shall subscribe to Mishra Dhatu Nigam Limited IPO (MIDANI IPO) if there is some demand from FIIs and/or Mutual Funds.
  • Watch this space esp. on Day 3 for any final observations.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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