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Mishra Dhatu Nigam
A niche and non‐commodity play on Defence and Space sector
March 20, 2018
IPO Note
Kamlesh Bagmar [email protected] +91‐22‐66322237
Amit Khimesra [email protected] +91‐22‐66322244
Rating Subscribe
Price Band Rs87‐Rs90
IPO Fact Sheet
Opening Date March 21, 2018
Closing Date March 23, 2018
BRLMs‐ SBI Capital Markets, IDBI Capital Markets
Issue Size Rs 4.24bn – Rs4.38bn
Issue Details Pre‐issue equity (m shares) 183.28
Post‐issue equity (m shares)* 183.28
Post‐issue Market Cap (Rs bn)* 16.8bn
* Calculation on higher price‐band
Mishra Dhatu Nigam Ltd. (MIDHANI) was incorporated in 1973 by Ministry of
Defence, GOI with an aim to achieve self‐sufficiency in R&D and supply of critical
alloys and products of national security. It manufactures Speciality steel (Alloying
material of Nickel, chromium and cobalt), Super alloys (Individual alloys of Nickel and
cobalt) and Titanium alloys. These products are used in highly critical applications
where the stress, temperature and corrosion are extremely high. Given better
mechanical properties and high strength, these products mainly cater to defence,
space and auto sector. India’s demand of Speciality steel/Superalloys/Titanium alloy
in India is estimated at ~80kt/2.5kt/1kt in 2016 and is expected to grow at rate of a
CAGR of 4%/9%/5% during 2016‐2021, owing to the investments planned in
aerospace and defence sectors and continued growth in auto sector.
Defence and space constituted 72%/22% of MIDHANI’s revenue in FY17. The current
order book stands at Rs5.17bn which includes Rs2.8bn/Rs1.7bn from Defence/Space
sectors to be executed over 12 month’s period. It produced 6150 tonnes in FY17,
growing at a 5‐year CAGR of 12%. Led by double digit volume and expansion in
margins, Sales/PAT grew at CAGR of 8.7%/13% to Rs7.7bn/Rs1.3bn in FY17. Steady
earnings growth and 30% dividend pay‐out helped company to maintain ROE in the
range of 18‐20% consistently.
Company has existing manufacturing facility at Hyderabad. It is planning to setup
new plants at Rohtak & Nellore at a capex of Rs1bn to be spent over 2‐3 years.
Company will manufacture bulletproof Jackets, bulletproof vehicles and armour
products, etc at Rohtak Plant. Plant is expected to be commissioned by the end of
FY19. Nellore plant will manufacture Ammonium Para Tungsten (APT), Tungsten
powder & Tungsten carbide plant at a capex of Rs0.8bn expected to be
commissioned by FY20.
The GOI is offering 48.7mn shares (26% of equity) to raise Rs4.4bn at upper end of
the band at Rs90, valuing the company at Rs17.5bn trading at a PER of 13.3x FY17.
Given the strong outlook on Defence and Space sector, increasing product basket
and high barriers to entry, OFS of MIDHANI provides good long‐term opportunity
with attractive valuations.
Key financials (Y/e March) FY14 FY15 FY16 FY17
Revenues (Rs m) 5,546 6,474 7,165 7,733
Growth (%) 0.1 16.7 10.7 7.9
EBITDA (Rs m) 1,081 1,281 1,511 1,853
PAT (Rs m) 825 992 1,194 1,263
APAT 842 992 1,194 1,263
EPS (Rs) 4.5 5.3 6.4 6.7
Profitability & Valuation FY14 FY15 FY16 FY17
EBITDA margin (%) 19.5 19.8 21.1 24.0
RoE (%) 18.9 18.4 19.3 17.9
RoCE (%) 9.9 11.9 12.8 13.5
EV/EBITDA (x) 15.0 12.9 9.9 8.1
P/E (x) 20.01 17.00 14.12 13.35
Source: Company Data; PL Research * All ratios have been calculated at the higher price band
March 20, 2018 2
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Exhibit 1: Issue Details
Company Mishra Dhatu Nigam Ltd.
Profile Mishra Dhatu Nigam Ltd. (MIDHANI) Conferred the 'Mini‐Ratna (Category ‐1)' status from MoD, GoI
Offer Period Opens On : Tuesday, March 21, 2018
Closes On : Thursday, March 23, 2018
Price Band Rs87/‐ to Rs90/‐
Retail & Employee Discount
Rs. 3/‐ per Equity Share
Bid Lot 150 Equity Shares & in multiple of thereafter
Offer Size Offer for sale of 48,708,400 Equity Shares
Issue Size (In Rs.) Rs4.38bn
QIB : 50% of the Issue
NIB : 15% of the Issue
RETAIL : 35% of the Issue
Mode of Payment ASBA Mandatory (No Cheques will be accepted)
Lead Manager SBI Capital Markets, IDBI Capital Markets
Registrar Alankit Assignments Limited
Listing NSE and BSE
Source: Company Data, PL Research
March 20, 2018 3
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Business Background
MIDHANI is the only producer in India to carry out vacuum based melting and
refining through vacuum melting furnace such as vacuum induction melting, vacuum
arc remelting, vacuum degassing/ vacuum oxygen decarburization, electro slag
remelting and electron‐ beam melting.
Company is one of the few metallurgical plants of its kind in the world specialized in
manufacturing wide range of Speciality steel, Superalloy and Titanium alloy products
mainly catering to aerospace, defence, atomics, space, energy and other industries
that require high precision. Its products are mainly used in high end engineering
applications that require precision and high efficiency to withstand stress,
temperature and corrosive atmosphere.
It manufactures speciality steel like martensitic steel, ultra‐high strength steel,
austenitic steel and precipitation hardening steel. It manufactures three varieties of
Superalloys – nickel base, iron base and cobalt base. It also manufactures varieties of
titanium alloys. Most of the orders executed are in the nature of an import
substitute and have the competence of developing and manufacturing customized
alloys tailor‐made to suit the specific requirements of customers for their critical
applications.
MIDHANI has manufacturing unit at Hyderabad and is in the process of setting up
two new manufacturing facilities in Rohtak and Nellore. Company has in house R&D
team with 14 people, accredited to National Accreditation Board for Testing and
Calibration Laboratories.
Exhibit 2: Key Management Personnel
Name Age Designation
Dr. Dinesh Kumar Likhi 57 Chairman and Managing Director
Sanjeev Singhal 52 Director (Finance) and Chief Financial Officer
Sanjay Kumar Jha 53 Director (Production & Marketing)
Indraganty Venkateswara Sarma 65 Independent Director
Dr. Jyoti Mukhopadhyay 65 Independent Director
Dr. Usha Ramachandra 56 Independent Director
Surendra Sinh 61 Independent Director
Source: RHP, PL Research
Conferred the 'Mini‐Ratna (Category ‐1)'
status from MoD, GoI
MIDHANI’s current order book as of
January 31, 2018 is Rs5.2bn
March 20, 2018 4
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Market Segmentation: Speciality steel, Superalloy and Titanium alloy products in india
Speciality steel accounts for 9% of global steel production. The speciality steel
market is accounted by niche alloys such as Ni (0.2% of total market demand for
speciality steel), speciality alloy (<2%), stainless steel – longs (4%), bearings (5%),
stainless steel – flats (20%), and other alloy steel (69%). MIHDANI is focused on Ni
and speciality alloys which is the most specialised and niche segment.
Exhibit 3: Heterogeneity in the Steel Sector, Tonnes (MT), %
Source: RHP, PL Research
Speciality Steel: Speciality steel products are high strength – low alloy steel
grades that exhibit better mechanical properties in critical applications where
the stress, temperature and corrosion are high. The carbon content in these
grades ranges between 0.05% to 0.25% which helps to retain formability and
weldability of the metal. The other key alloying elements are manganese,
chromium, nickel, copper, niobium and molybdenum. These alloying elements
are intended to alter the microstructure of carbon steel mainly to improve
mechanical and metallurgical properties. These grades are generally priced high
when compared to other conventional alloy grades as they are mainly preferred
for special purpose applications.
March 20, 2018 5
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Exhibit 4: Major types of Speciality steel grades in India produced by MIDHANI
Source: RHP, PL Research
Ultra High Strength Steel: Ultra High Strength Steel has yield strength between
1400 and 2400 MPa with high strength, excellent toughness and weldability
without losing their malleable nature and it belongs to the ultra‐high strength
materials category.
Armor Grade Steel Plates: Armor grade steel plates are used for bullet proof
application to ensure the safety of individuals and/or contents transported from
one place to another. It possesses excellent hardness and toughness along with
high velocity projectile for vehicles in combat situation. The key end user
application includes both defence vehicles and commercial vehicles. Generally
the walls, doors, and the ceiling of these vehicles use armour grade steel to
increase the ballistic resistance of the vehicle. The functional components of the
vehicles such as engine components are made of superior quality to withstand
load and excess weight.
Ferritic Stainless Steel: Ferritic steel contains high content of chromium,
magnetic stainless steel with less than 0.12% carbon content. Ferritic steel have
good resistance to corrosion along with excellent surface finish and stress
corrosion cracking. This material finds application with thinner material and
reduced weight with strength.
Martensitic Stainless Steel: Martensitic steel has carbon content of upto 0.75%,
with chromium from 12.5% to 18%. Tempered martensite steel provides
increased hardness and high toughness. Improved group of martensitic stainless
steels are the super martensitic stainless steels that provide high strength with
low‐temperature toughness having acceptable corrosion resistance.
High value Speciality Steel
Alloy Steel
Ultra High Strength Steel
Armour GradeOther
Products
Stainless Steel
Ferritic Martensitic AusteniticPercipitation Hardening
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Austenitic Stainless Steel: Austenitic steel are non‐magnetic stainless steel
grade with high level of chromium (upto 28%) and nickel (36%) along with low
level of carbon. Austenitic steel grades have enhanced corrosion resistance with
modified structure from ferritic to austenitic. These types of grades are
categorized with 200, 300 series and are most commonly used type among
other types of stainless steel.
Precipitation Hardening Steel: Precipitation hardening steel is classified as
martensitic or semi austenitic steel grade that can be strengthened and
hardened by heat treatment. This material is ideal for applications that requires
high strength‐to‐weight ratio such as aerospace.
Exhibit 5: Application Areas for Speciality Steel Grades
Titanium Alloy Grades
Key End User Segments Illustration of Application Areas
Ni Alloy
Aeronautical
Defence
Aircraft engine parts
Aerospace exhaust system
Auto Components
Industrial Machinery
Crankshafts
Gears
Casings for motors
Die casting
High Strength Armour grades
Defence Vehicles for combat
Ceilings
Walls
Doors
Armoured Commercial Vehicles for
VIPs and SWAT vehicles
Ceilings
Walls
Doors
Martensitic Stainless Steel
Aerospace Valve Parts
Consumer Durables
Medical
Oil & Gas
Chemical
Tools & Machineries
Multi‐Purpose tools
Valve Parts
Surgical Instruments
Shears
Ferritic Stainless Steel
Aerospace Exhaust Systems
Automotive
Oil & Gas
Chemical Plants
Power Plants
Processing Industries
Automotive exhaust systems
Heat Exchangers
Furnace combustion chamber
Chemical and oil refinery equipment
Austenitic Stainless Steel
Automotive
Food Processing
Chemical
Pharmaceutical
Automotive trim
Food & Beverage Equipment
Process Equipment
Precipitation Hardening Steel (PH)
Aerospace Exhaust systems
Oil Patch
Oil & Gas
Power Plants
Chemical Plants
Pump Shaft
Oil Patch
Mechanical Seal
Source: RHP, PL Research
March 20, 2018 7
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Superalloy Products: Superalloy products have high creep resistance at high
temperature without any deformation along with excellent corrosion and
oxidation resistance properties. They typically have an austenitic face‐centered
cubic crystal structure with a base alloying element of nickel, cobalt, iron and
nickel‐iron. Superalloys are high performance materials. They can be classified
based on their alloying element into three types as shown below. MIDHANI
produces all three types of Superalloys.
Exhibit 6: Superalloys product categories
Source: RHP, PL Research
Nickel Based Superalloy: Nickel based superalloy can withstand higher
temperature for a longer period of time and hence finds application in high
temperature (greater than 0.7 of the absolute melting temperature)
applications along with excellent creep, fatigue and oxidation resistance. Nickel‐
based Superalloys are found in a wide range of applications; the most prominent
use is in the manufacture of gas turbines for use in commercial and military
aircraft, power generation and marine propulsion.
Iron Based Superalloy: Iron based superalloy is characterized to withstand high
temperature with resistance to creep, oxidation, corrosion, and wear. The
maximum of wear resistance is achieved by increasing of carbon content while
oxidation resistance increases with addition of chromium content. Iron based
alloys are predominantly used in Aerospace components such as bearings,
fasteners, etc. Nickel‐Iron base superalloy are also commonly used alloy grade
with nickel between 9‐45% and Iron ranging between 15‐60%.
Cobalt Based Superalloy: Cobalt based Superalloys have much lower high
temperature strength but has superior hot corrosion and sulfidation resistance
compared to nickel based Superalloys due to high chromium content and low
diffusion of sulfur in the matrix. These alloy materials are used in combustion
chambers of gas turbines (both industrial and aero engines).
Superalloys
Nickel Based
Iron BasedCobalt based
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Exhibit 7: Application Areas for Superalloy Grades
Titanium Alloy Grades Key End User Segments Illustration of Application
Areas
Nickel Based Superalloy
Aeronautical Jet engine
components
Air Frames
Power Plants
Oil & Gas
Chemical Plants
Gas turbines
Combustors
Heat exchanger tubing
Pump motor shaft
Cryogenic tanks
Iron Based Superalloy
Processing Industries
Chemical Plants
Power Plants
Industrial Machineries
Oil & Gas
Process equipment
Pre & Super heaters
Steam boilers
Piping application
Industrial furnace
Valves & fittings
Nickel‐iron alloy
Aerospace
Defence
Electronic appliances
Navigating systems
Electric and electronic appliance
Power Sectors
Industrial Machineries
Consumer Durables
HV Transmission lines
Heaters
Composite moulds
Electric Furnace
Electronic housings
Nickel‐Chromium‐Cobalt alloy
Aerospace
Defence
Aerospace fasteners
High temp discs
High temp springs
Power Plants
Automotive
Turbine blades
Exhaust re‐heaters
Iron – Cobalt alloy Soft Magnetic Alloy
Aerospace
Defence Electronic
Instruments
Consumer Durables
Industrial Machineries
Power Stations
Electric motor parts
Electronic appliances
Sonar application
Ultrasonic equipment
Source: RHP, PL Research
March 20, 2018 9
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Titanium Alloys: Titanium and titanium based alloys are non‐magnetic but have
excellent corrosion resistance and light weight, have high tensile strength and
toughness even at higher temperatures. Due to this, they find extensive
application in aircraft and spacecrafts. Titanium alloys are used as biomedical
implants since it is biocompatible. They are also used in other commercial
applications such as cryogenic vessels, process equipment, etc.
Exhibit 8: Application Areas for Titanium Alloy Grades
Titanium Alloy Grades Key End User Segments I
Illustration of Application Areas
Pure Titanium and Titanium Alloy Based
Aerospace
Aircraft engine parts
Aerospace exhaust system
Chemical desalination
Process equipment
Marine components
Steam turbine blades
Structural forgings
Cryogenic parts
Defence
Marine Applications
Power Plants
Oil & Gas
Chemical Plants
Pharmaceutical
Medical
Processing Industry
Source: RHP, PL Research
Exhibit 9: MIDHANI’s revenue break‐up in FY17
Defence72%
Space22%
Others6%
Source: Company Data, PL Research
Exhibit 10: Order‐book break‐up of Rs5.2bn as on Jan 31, 2018
Defence55%
Space
32%
Others13%
Source: Company Data, PL Research
March 20, 2018 10
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Exhibit 11: Process flow chart of forged products
Source: Company Data, PL Research
March 20, 2018 11
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Manufacturing Facilities
Exhibit 12: Manufacturing Facilities
Location Infrastructure Facilities
Hyderabad
Vacuum Arc Re‐Melting Furnace
Vacuum Induction Melting Furnace
Creep Testing Machines
Heat Treatment Oil Quenching
ElectroSlag Refining Furnace
Vacuum Induction Refining Furnace
Computerised Forge Press
Precision 12‐HI‐Cold‐Strip Mill
Primary Melting Furnaces
Secondary Melting Furnace
1500 T Forge Press
Hot Rolling & Precision Cold Rolling
Bar and Wire Drawing
Titanium Facility
Tube Plant
Vacuum Investment Casting Facility
Core & Laminations Facility
Finishing Lines & Support Facilities
Quality Assurance & Control Lab
On‐Line Quality Testing Facilities
Upcoming plants
Rohtak
Armour project: MIDHANI is planning to set up a dedicated Armour Plant, at Rohtak, Haryana. MIDHANI has ventured into different armour products like Bullet Resistant Jackets, Armouring of vehicles, Fibres / Fabrics for bullet resistant jackets etc. and all these are in different stages of implementation. These are likely to be completed during FY19.
Nellore
Tungsten Powder Facility: MIDHANI and NMDC Limited have signed an MOU for Tungsten – Mining & Development of Processing Technology in October 2016. Company will be setting up Ammonium Para Tungsten (APT), Tungsten powder & Tungsten carbide plant at Nellore. Plant is expected to commission by FY20
Source: RHP, PL Research
March 20, 2018 12
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Exhibit 13: Armouring Products for Indian Defence Sector
Source: Company Data, PL Research
Exhibit 14: Products manufactured by MIDHANI
Source: Company Data, PL Research
March 20, 2018 13
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India Overview
Demand for the Speciality steel, Superalloy and titanium alloy is observed to be
around 83,500 MT during 2016, speciality steel having the maximum contribution of
around 96% followed by Superalloys with 3% demand contribution and titanium
accounting for 1% during 2016. The market for the select products has grown at a
steady growth of around 5.8% during 2011‐2016. The market for special metals and
alloys is mainly driven by growth in aerospace and defence sectors that are expected
to grow at a CAGR of around 8% during 2016‐2021. The categories requirement for
special metals and alloys are expected to witness a cumulative demand growth of
around 9% owing to major investments proposed in aerospace, defence and other
industrial manufacturing sectors during 2016‐2021.
The key end user segments that consume the selected products are aerospace,
defence, automotive and energy sector that includes oil and gas and petrochemical
segments. Aerospace and defence had the maximum demand contribution with over
70% of the overall demand for high value speciality, Superalloys and titanium alloy
products during 2016.
Exhibit 15: Key demand growth driving sectors
Source: RHP, PL Research
Exhibit 16: Industry wise classification of select products
Source: RHP, PL Research
Aerospace
Defence
Others ‐ Auto Components, Oil & Gas, Chemical etc
March 20, 2018 14
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Aerospace: The Indian aviation sector is likely to see investments of around USD
15 billion during 2016‐2020 of which USD 10bn is expected to come from the
private sector. This investment includes addition of 300 business jets, 300 small
aircraft and 250 helicopters to the existing fleet of Indian carriers, which in turn
will fuel the demand for high value speciality steel, Superalloys and titanium
alloys. India is rapidly building capabilities to emerge as a preferred destination
for Indian maintenance, repair and overhaul (“MRO”) for aviation. India’s
current MRO market size is estimated to be around USD 750 million. The market
is expected to grow at 7% CAGR to reach over USD 1.5 billion by 2020. The
Indian space program spearheaded by the ISRO is engaged in developments of
its future space science missions like Chandrayaan‐2 and Aditya‐L1, amongst
expanding many of its current projects.
Defence: India’s defence industry continues to strive to become a cutting edge,
technology‐savvy, self‐sufficient, and world‐leading industry. According to data
published by the Department of Industrial Policy and Planning, India’s defence
industry had attracted Rs130bn in Foreign Direct Investment (“FDI”) in Fiscal
2015. The proposed 100% FDI with full technology transfer aims at addressing
the need of capital investment and improved technology transfer. Ordnance
factories (“OF”) and Defence Public Sector Undertakings (“DPSUs”) are engaged
in the manufacturing of weapon systems for the armed forces. The private
sector has been mainly involved in supplying raw material, semi‐finished
products, and components to DPSUs, OF, army base workshops, air force base
repair depots, and navy dockyards.
Some key features of the Indian defence industry include:
Fourth largest armed forces worldwide, in the 2017 Military Ranking by the
Global Firepower list
One of the largest arms importer, accounting for 12.8% of global arms imports
(between 2012 and 2016). Almost 70% of the defence requirements are
imported
Ranks fifth in the global military budget (2016)
By 2027 the government plans to achieve approximately 70% indigenization in
defence purchase, and the government has taken steps by budgeting Rs915bn
for defence capital expenditure in Fiscal 2018, which is 25% of the nation’s
overall defence budget. To take this to the next level, India expects to export
defence equipment worth Rs128bn by 2019 to countries such as Vietnam,
Mauritius and the UAE.
Between 2015 and 2020, the defence cumulative spending is estimated to be
Rs22,931bn, of which new armaments spending is estimated to be Rs8,630bn.
Procurement of new equipment from domestic sources is estimated to increase
between 2015 and 2030 from 44% to 55%. By Fiscal 2025‐2030, the defence
spending is estimated to hit Rs41,934bn.
March 20, 2018 15
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Exhibit 17: Share of Defence Services in Defence Budget during 2018
Army55%
Airforce22%
Navy14%
DRDO5%
ISRO3%
Ordinance
Factories1%
Source: RHP, PL Research
Other Major End User Segments:
As per Automotive Mission Plan 2016‐2026 (“AMP”), Indian auto component
industries could attain an impressive USD 200 billion in revenue by 2026, with
exports of USD 80 billion. Contribution of auto component Industry in India’s
GDP will account to as much as 5‐7% by 2026.
Oil & gas (includes petrochemical & refinery): contributes over 6% of the overall
demand for Speciality steel and Superalloy products for process equipment,
process pipe and piping systems, and boilers. As per the 12th Five Year Plan, oil
production would increase to 844 MTOE by 2021‐22, with an investment of
around USD 43.69 billion across the value chain that will help the demand for
select products to grow at around 5% for oil and gas sector.
The Indian auto component industry is expected to achieve USD 200 billion in
revenue by 2026, with exports of USD 80 billion. Contribution of auto
component industry in India’s GDP will account to as much as 5% to 7% by 2026.
As India grows its stance as an industrial and knowledge economy, energy
demand will grow to 1,509 MTOE in 2030, double the current demand. India will
need to import nearly 1/3rd of its demand in 2030. India will also turn to
renewable sources, and its generation could become a formalized part of the
grid which will fuel the demand for Speciality steel, Superalloys and titanium
alloy products.
The chemical industry is an integral component of the Indian economy and has
the potential to grow at 9% per annum to reach USD 214 billion by 2019. The
pulp and paper industry is growing at a healthy rate of around 6.8% during
2014‐16 and is expected to continue at the same rate fueling the demand for PH
grade stainless steel products.
March 20, 2018 16
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High value speciality steel grades have the highest demand among the select product
category with over 80% of the total demand in 2016. The cumulative demand for
high value speciality steel, Superalloy and titanium expected to witness a growth of
around 6.5% during 2016‐2021, owing to the proposed investment plans of end user
segments.
Exhibit 18: Market size in India (in tonnes)
80,000
‐
20,000
40,000
60,000
80,000
100,000
High Value Speciality Steel
2,500
1,000
‐
500
1,000
1,500
2,000
2,500
3,000
SuperAlloys Titanium Alloys
Source: RHP, PL Research
Speciality steel: Demand for select Speciality steel grades in India observed to
be around 80,000 tonnes in 2016. According to Frost & Sullivan, high strength
Nickel alloy accounted for a demand of around 50,000 tonnes as it is mainly
preferred in automotive and auto component manufacturing sectors. The
demand for high value speciality steel is expected to witness a positive growth
rate of around 4.2% during 2016‐2021 mainly due to growth in auto and auto
component manufacturing segments in India. The demand contribution of other
speciality steel grades such as stainless steel and armor grade steel observed to
be around 18,000 tonnes and 12,000 tonnes in 2016. Demand for armor grade
steel expected to grow at a healthy rate of 4.5% on the back of new ‘Make in
India’ policy and proposed investments in defence sector.
Exhibit 19: Estimated market size of High value speciality steel in India (in tonnes)
80,000
89,300 98,100
‐
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2016 2019E 2021E
Source: RHP, PL Research
March 20, 2018 17
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Superalloy products: Supported by growth in key end user segments such as aerospace, defence and industrial component sectors, Frost & Sullivan observed
the demand for Superalloy products in India to be around 2,500 tonnes. Nickel based alloy products accounted for the main demand during the year 2016. Demand for other Superalloys such as iron and cobalt based Superalloys is
estimated at 250 tonnes and 225 tonnes respectively. The demand for Superalloys expected to grow at around 9% to reach 3,000 tonnes in 2016‐2021, owing to the planned investments in aerospace and defence sectors.
Exhibit 20: Estimated market size of Superalloys in India (in tonnes)
2500
28003000
0
500
1000
1500
2000
2500
3000
3500
2016 2019E 2021E
Source: RHP, PL Research
Titanium Alloy: In India, the demand for titanium is mainly dependent on
overseas markets to source titanium sponge due to inadequate availability of high quality material. Frost & Sullivan observed that the demand for titanium
alloy products was around 1,000 tonnes in 2016, mainly catering to aerospace and defence sectors in India. The key customers for titanium alloy grades are ISRO, HAL and DRDO who prefers to procure on project basis, only from
authorized vendors. Major end‐users such as ISRO, HAL prefers to procure both from domestic and imported material (mainly from USA and Europe) based on both quality and availability of the material.
Exhibit 21: Estimated market size of Titanium Alloys in India (in tonnes)
1000
1150
1300
‐100
100
300
500
700
900
1100
1300
1500
2016 2019E 2021E
Source: RHP, PL Research
March 20, 2018 18
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Financial Snapshot
Exhibit 22: Revenue grew at a CAGR of 11.7% from FY14‐17
5,546
6,474 7,165
7,733
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY14 FY15 FY16 FY17
(Rs m)
Source: RHP, PL Research
Exhibit 23: EBITDA and EBITDA Margins
1,081
1,281
1,511
1,853
19.5% 19.8%21.1%
24.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
‐
500
1,000
1,500
2,000
FY14 FY15 FY16 FY17
(Rs m)
Source: RHP, PL Research
Exhibit 24: Profit after Tax grew at a CAGR of 16% from FY14‐17
842
992
1,194 1,263
‐
200
400
600
800
1,000
1,200
1,400
FY14 FY15 FY16 FY17
(Rs m)
Source: RHP, PL Research
Exhibit 25: Return on Equity
18.1%18.4%
19.3%
17.9%
17.0%
17.5%
18.0%
18.5%
19.0%
19.5%
FY14 FY15 FY16 FY17
Source: RHP, PL Research
Exhibit 26: Return on Capital Employed
9.9%
11.9%
12.8%
13.5%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
FY14 FY15 FY16 FY17
Source: RHP, PL Research
Exhibit 27: Gross Block Movement over the years
2,435 2,423 2,750
3,571
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY14 FY15 FY16 FY17
Source: RHP, PL Research
March 20, 2018 19
Mishra Dhatu Nigam
Financial Snapshot
Exhibit 28: Income Statement (Rs mn)
Particulars (Rs in millions) FY14 FY15 FY16 FY17 H1FY18
Net Revenue 5,546 6,474 7,165 7,733 2,037
YoY Gr 0.1% 16.7% 10.7% 7.9%
Expenses:
Cost of materials consumed 1,961 2,120 2,449 1,938 442
as a % of Sales 35.4 32.7 34.2 25.1 21.7
Change in inventory/work‐in‐progress (96) 73 380 776 (304)
Employee benefits expense 966 989 907 1,093 492
as a % of Sales 17.4 15.3 12.7 14.1 24.2
Power & Fuel 424 511 507 593 255
as a % of Sales 7.6 7.9 7.1 7.7 12.5
Sub‐Contract Charges 375 383 439 518 289
as a % of Sales 6.8 5.9 6.1 6.7 14.2
Consumption of stores, loose tools and spares 254 252 283 342 164
as a % of Sales 4.6 3.9 4.0 4.4 8.1
Other expenses 580 864 689 619 246
as a % of Sales 10.5 13.4 9.6 8.0 12.1
Total Expenditure 4,465 5,192 5,654 5,880 1,585
EBITDA 1,081 1,281 1,511 1,853 452
EBITDA Margin (%) 19.5% 19.8% 21.1% 24.0% 22.2%
Other income 209 227 290 234 126
Depreciation and amortization expense 60 98 141 177 94
EBIT 1,230 1,410 1,660 1,910 485
Finance costs 42 70 42 47 15
PBT 1,188 1,340 1,618 1,863 470
Extraordinary item(net of tax expense ) (26) ‐ ‐ ‐ ‐
Total Tax 390 348 425 600 196
Tax Rate 32.1% 26.0% 26.2% 32.2% 41.9%
Profit after Tax 825 992 1,194 1,263 273
EPS 4.4 5.3 6.4 6.7 1.5
Source: RHP, PL Research
Exhibit 29: Cash Flow (Rs mn)
Particulars (Rs in millions) FY14 FY15 FY16 FY17
Net Cash Flow from Operating activities (20) 471 2,159 1,189
Net Cash Flow Used In Investing activities (180) (95) (1,067) (649)
Net Cash Flow From Financing activities (474) (429) (903) (425)
Net Cash Generated (673) (53) 190 116
Capex (349) (311) (300) (816)
FCF (369) 159 1,859 373
Source: RHP, PL Research
March 20, 2018 20
Mishra Dhatu Nigam
Exhibit 30: Balance Sheet (Rs mn)
FY14 FY15 FY16 FY17 H1FY18
Shareholders’ funds
Share capital 1,873 1,873 1,873 1,873 1,873
Reserves and Surplus 2,578 3,527 4,323 5,170 5,461
Total 4,451 5,401 6,197 7,043 7,334
Non‐current liabilities
Long term borrowings 182 133 90 12 8
Deferred tax liabilities (Net) 64 127 226 204 244
Other long term liabilities ‐ 142 165 173 469
Long term provisions 5 6 7 8 8
Other non‐current liabilities 2,114 1,294 1,475 1,089 1,109
Total 2,365 1,703 1,963 1,487 1,837
Current liabilities
Short term borrowings 279 415 0 126 647
Trade payables 969 952 530 660 904
Other financial liabilities ‐ 768 472 576 578
Other current liabilities 2,815 1,931 1,442 831 754
Short‐term provisions 2,624 462 605 287 243
6,687 4,527 3,049 2,480 3,127
Total 13,503 11,631 11,208 11,010 12,299
ASSETS
Non‐current assets
Fixed assets
(i)Tangible assets 1,130 2,423 2,615 3,264 3,236
(ii) Intangible assets 25 19 15 9 7
(iii) Capital work in progress 1,179 94 67 62 542
Non‐current investments 21 21 21 21 21
Long‐term loans and advances 14 0 0 0 0
Deferred Tax Assets ‐ 534 637 293 390
Other non‐current assets 0 33 17 94 157
Total 2,369 3,126 3,371 3,744 4,354
Current assets
Inventories 4,528 4,230 2,885 2,060 2,508
Trade receivables 2,436 2,201 2,091 2,885 2,223
Cash and bank balances 1,056 894 1,959 2,079 2,605
Short‐term loans and advances 3,040 ‐ ‐ ‐ ‐
Other Financial Assets ‐ 136 122 117 135
Other current assets 74 1,044 781 125 474
Total 11,134 8,505 7,837 7,266 7,945
Total 13,503 11,631 11,209 11,010 12,299
Source: RHP, PL Research
March 20, 2018 21
Mishra Dhatu Nigam
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
45.0% 43.4%
11.6%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
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